U.S. Reject Tesla's Request for Tariff Exemption for the Model 3's ‘Autopilot' Computer
The Trump administration has threatened foreign automakers with tariffs of 25 percent on autos and components shipped to the U.S. President Trump says that imported vehicles take away sales from U.S. automakers, as well as being a threat to national security. However, the auto industry is a global one, and many parts, especially electronics and computer modules, are made is Asia, including the "brain" of Tesla mass-market Model 3.
Tesla had asked U.S. trade officials for an exemption for the Model 3 CPU from the tariffs on electronics components, but the automaker was denied. The CPU that runs Tesla's Autopilot automated driving feature is made by Chinese supplier Quanta Shanghai.
The Model 3 CPU is one of more than 1,000 product denials linked to China's industrial development plans. Tesla has a separate pending tariff exclusion request for duties on the Model 3's center-mounted touchscreen display, which is also made in China.
Tesla wrote in a securities filing on Monday that "our costs for producing our vehicles in the U.S. have also been affected by import duties on certain components sourced from China."
A 25 percent tariff on imported parts and vehicles would cause vehicle prices to jump more than 17 percent, or an average of around $5,000 each per vehicle, according to IHS Markit.
Tesla first made its request to exclude its 3.0 Autopilot CPU in July 2018, when the automaker warned that "increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact to profitability."
In a March 15 letter, Office of the United States Trade Representative (USTR) general counsel Stephen Vaughn said the agency was denying Tesla's request because it "concerns a product strategically important or related to ‘Made in China 2025 or other Chinese industrial programs." USTR issued a separate letter also denying a request for the earlier 2.5 version of the Autopilot ECU.
The Tesla Model 3
Made in China 2025 is a program aimed at growing China's prowess in ten strategic industries, including autonomous vehicles, aerospace, semiconductors, biopharmaceuticals, robotics and artificial intelligence. These industries, currently led by companies the U.S., are at the heart of trade negotiations and U.S. demands for sweeping changes to China's policies.
Trump administration is looking to thwart China's efforts in develop high-technology industries that benefited from theft and forced transfer of U.S. intellectual property.
Tesla is not alone in its denial. The Office of the United States Trade Representative (USTR) has received China tariff exclusion requests for nearly 13,000 products and denied 5,311 of them. Of the denials, 1,166 contained the same language as the Tesla request, citing links to Made in China 2025.
Tesla Said it Could Not Find a U.S. Supplier for the Model 3 CPU
As reported by Reuters, Tesla told USTR it was unable to find a manufacturer in the United States, adding that "choosing any other supplier would have delayed the (Model 3) program by 18 months with clean room setup, line validation, and staff training."
Tesla says it refreshes the Autopilot ECU with the latest Firmware developed in California when it is shipped from China.
"For a product as safety critical to consumers, and critical to the essence of Tesla, we turned to industry experts who could achieve this quality and complexity in addition to the deadlines, which was not possible outside of China," Tesla wrote. "When it comes to identifying a supplier, we cannot risk our customers' lives due to a defect from a supplier."
The Autopilot ECU, also used in the Model S and X, includes two printed circuit board assemblies, which Tesla calls "the brain responsible for Tesla's Autopilot functionality" and the main safety system for the vehicle.
Other automakers have sought tariffs exemptions but have not yet received a response from USTR.
Last July, General Motors (GM) sought an exemption to a 25 percent U.S. tariff on its Chinese-made Buick Envision sport utility vehicle. The Envision accounted for nearly 15 percent of the Buick brand sales last year. As a result, GM said is will not sell the Envision in the U.S.
GM has also sought exclusions for dozen of miscellaneous parts, including push button ignition switches and transmission bearings.
Even if the United States and China reach a trade deal in the coming weeks to resolve their disputes, companies may not see tariff relief for months or possibly years. People familiar with the talks who spoke to Reuters said that some tariffs, especially those aimed at the Made in China 2025 industries, could remain in place as part of an enforcement mechanism.
Vice President Mike Pence said on Friday that the manner in which tariffs were removed would be part of that mechanism, aimed at ensuring China lives up to its obligations in any agreement.
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