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The White House TechCrunch has refused to refuse to exempt the "brain" of Tesla autopilot technology from punitive import tariffs, a decision that could delay or disrupt the company's ambitions for autonomous driving
At a special Independence Day event last week, Elon Musk, President and CEO of Tesla, unveiled the advanced Autopilot 3.0 hardware, including a new custom chip designed to enable stand-alone operation. of all his new vehicles. This hardware is now standard in all new 3, S, and X model vehicles. Customers are paying an additional $ 6,000 for the software upgrade called FSD.
The self-driving hardware resides in the autopilot computer (or engine control unit), a module that Tesla describes as the "brain of the vehicle." This module is assembled in Shanghai, China, by a company called Quanta Computer.
Tesla's plans could be affected by an unreported decision last month by the White House not to grant the automaker a 25% duty exemption. President Trump imposed these tariffs last year on a range of imports, including electronics, to reduce the US trade deficit with China.
Tesla suggested that tariffs could force it to stop manufacturing its autonomous computers in China, delaying their introduction and even reducing vehicle safety.
"Tariffs require us to find a new supplier, pass on increased costs to the end customer, or reduce operational costs in our internal operations, which has the opposite impact on what we are proposing. [we believe] be the intention of the tariff, "writes the company in a request to the US sales representative (USTR) on November 16, requesting tariff relief.
But on March 15, the USTR's General Counsel informed Tesla that it was impossible deny the request of the company because it "concerns a strategically important product or related to" Made in China 2025 "or other Chinese industrial programs. The US Trade Representative also rejected a request for retroactive waiver for legacy Autopilot 2.5 hardware for the same reason.
Made in China
Made In China 2025 is China's strategic plan to abandon manufacturing to produce higher value goods, particularly in the areas of artificial intelligence, electric vehicles and robotics. the The White House sees the effort as a direct threat to US national technology and automotive companies.
However, US companies have long been among the biggest beneficiaries of Chinese manufacturing expertise. Quanta, Tesla's autopilot manufacturing partner in Shanghai, has also worked with Apple, Amazon and Verizon.
"Tesla was unable to find a [U.S.] manufacturer with the expertise to produce the Autopilot ECU 3.0 with the required specifications, the required volume and the time required for the continued growth of Tesla ", writes the company.
Tesla claimed that using Quanta would not help China reach the target that 80 percent of domestic sales of electric vehicles would come from Chinese companies by 2025. "On the contrary, if it were accepted, Exclusion request would ensure Tesla's continued technological and competitive potential. advantage of manufacturing electric vehicles and finished lithium-ion batteries in the United States, "he writes.
Tesla also pointed out that more than 75% of the value of the new computer's printed circuit board came from outside China. For example, Tesla's new state-of-the-art neural network chips, which are an essential part of the 3.0 autopilot, are under development. made by Samsung in Austin, Texas.
The tariff effect
But the White House has not bought it, and the rejection of the USTR is likely to hit Tesla hard. The company has already told investors that it could not guarantee the achievement of its gross margin targets now that it was selling the cheapest model variant 3.
"These rates are detrimental to our continued growth and sustainability in a very challenging industry," wrote Tesla.
Last week, the automaker announced a loss of $ 702 million in the first quarter of 2019, as a result of lower-than-expected shipments, and has announced plans to raise approximately $ 2.7 billion in selling a mix of debt and equity. The company originally announced plans to raise $ 2.3 billion in convertible notes and shares and then increased its total offering a day later, according to documents filed by the authorities.
You're here sells 3.1 million shares at a price of $ 243 per share by subscribers Goldman Sachs and Citigroup and carries its offer of convertible notes to $ 1.6 billion, according to documents filed. Musk also doubles on its own investment and is now considering buying up to 102,880 shares worth $ 25 million.
With limited ability to raise prices or cut costs, Tesla's other option would be to relocate manufacturing to the United States. But that comes with its own difficulties, according to the company.
"Tesla's decision to start production [of the new Autopilot computer took] six months between development and production, "he wrote in his application. "With condensed timelines like this, there's no room for testing a supplier who does not already have considerable experience … The choice of another vendor would have delayed the program 18 months with the configuration of the clean room, the validation of the line and the training of the staff.
Security concerns
Even more critical, given that Tesla's existing autopilot technology has been linked to several accidents and several deaths, the company believes that such an approach would also affect safety: "The purchase of a new supplier increases the risk of poor quality of parts, which can cause quality problems that could affect the safety of our vehicles and the end product … We can not risk the safety of our customers. lives because of a fault of a supplier. "
The rates could even disrupt ongoing research on artificial intelligence, machine learning and Tesla's computer vision, he feared.
"Tesla's leadership position depends on our ability to deploy these advances and components in volume, which we could not do with the current pricing structure," said his candidacy. Musk told investors yesterday that its autonomy would make Tesla a $ 500 billion company, a valuation more than ten times that of today.
Despite its strong wording for the USTR account, Tesla has only mentioned the rates in investor deposits by the way, where he's focused on their impact on his results: "The recent increase in import duties on certain components used in our products from China can increase our costs and have an impact negative on our operating results.
Tesla declined to comment on this story.
Greg Linden is an economist at the University of California, Berkeley, specializing in the global electronics supply chain. "China is the ideal place for speed and volume," he told TechCrunch in a recent interview. "About 25 years ago, Chinese companies were preparing to assemble their boards of directors without ever looking back." Component suppliers have followed, and China now has a weight for electronics high volume that no country can match. "
Linden calculated that an Apple iPhone assembled in the United States could represent an additional cost of $ 40 per unit, and estimates that building Autopilot 3.0 hardware in the United States would result in an increase of the same order of magnitude.
Persistent exemption requests
Tesla has several other requests for tariff exemptions pending from the US government. A request to exempt the car computer from model 3, including its Multimedia Control Unit, Connectivity Card and Advanced Driver Assistance System (ADAS) hardware, was submitted at the end of December. Tesla last week asked to be excluded tariffs for specialized aluminum sheets from Japan, required for the manufacture of lithium-ion battery cells at its Gigafactory plant in Sparks, Nevada.
But that's not bad news for Musk commercially. Last July, The Boring Company called for a reduction in tariffs on TBMs manufactured in China. She said that the impossibility of obtaining TBM parts in China would cost jobs and delay her proposal. underground transport system with loop between Baltimore and Washington DC for up to two years.
March 19th, the USTR allowed a retroactive exemption for TBM imports.
Ironically, the autonomous electric vehicles for the Baltimore to DC loop are based on Tesla cars that will likely rely on the new autopilot systems currently being built, at least for the moment, in China.
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