Tesla Plans to Cut China-Made Components: Analysis

Tesla announced plans to move away from the China market, saying it will no longer use Chinese-made components in its US manufactured cars. What does this move mean for the car industry and Tesla's special status inside China? Joining us to discuss is Curt Hopkins, CEO of mcqarkets.com. Kurt Hopkins, thank you so much for joining us. Great to have you on the show. >> Great. Thank you for having me. >> Now, Tesla has announced plans to move away from China made components in its US manufactured cars. Now, how long would this type of change take? Is there a supplier that's alternative to China? Is there the infrastructure in place for this? >> Well, I think Tesla's saying it could take up to two years. I suspect it may take much longer to fully get 100% there, but um you know, certainly I would think in two years time Tesla could make a big dent in in making those changes. >> And what what would that mean for the auto industry? this move away from China made components. Well, I think one of the big things and and and one of the big moves is that in the electronic vehicle um sector particularly the Chinese um manufacturers have raced ahead of North American and European manufacturers and I think um so it's you know you know clearly there's a lot of catching up to do but um also at the same time it is a very very important technical um arrangement technical stack as we say in the tech industry for the US in particular to catch up and to actually be able to be very successful in it. So I think these kind of investments uh be able to invest in US component manufacturing so that it can all be brought back to the US is very critical. >> Now Tesla's China relations are a bit unique. It has a gigaf factory there that is not part of a joint venture that's normally the price to get into the China market. With this move of moving away from China made components for the US manufactured cars, could Tesla hurt that special relationship with China? possibly. But I think it's really clear that Tesla's taking a dual track approach, which is really um kind of phenomenal to see. I mean, they they are manufacturing cars in Shanghai that all the components are from China and it's a fully Chinese-made car with different battery technology, for example. And now in the US and probably in Europe, they're going to be doing the same where they're basically going to be stripping out all the Chinese elements. And I think it's probably just a pragmatic um solution they've got to um they are highly incentivized in the US to um to to have homemade componentry um highly incentivized to you know with tariffs for example to do as little importing as possible. So I think these changes is just probably the pragmatic solution and it'll be interesting to see what other tech providers American tech providers do in particular Apple to see if they shift more and more of their manufacturing outside of China and back to North America into Europe. On that note, you have been seeing, you know, even the European Union complaining or blaming China for, you know, unfair trade practices, but also dumping of products, especially cars into the European market, which saying that the base doesn't actually want the cars. They're just kind of taking up lots there. You're seeing a bit of that play out in the US as well. Looking forward though, do you see maybe a diversifying of, you know, car makers making cars just for a certain country or is it more of that globalization still? >> I think um let's see what the mix is. Obviously, globalization is is where it's at right now, but the shift is back to more local production. So, but I I I do think that in China in particular, there is a playbook and the playbook is to heavily subsidize the industry. um basically dump products to gain market share, drive competition out and then you know you know basically take a much larger share wallet. So that playbook we've seen across industry, we've seen in the telecom tech industry, we've seen it elsewhere. And so I think the west now is very much aware of that strategy, very much aware of the national security concerns around it, very much aware of just the pure economic um um you know uh competitive warfare that's happening. So I think it it is interesting and important that the US and European players start to bear in mind for their critical industries. >> On that national security point, I think you are seeing some movement as you mentioned in the US under President Trump. It's a lot about tariffs, right, to try and bring back manufacturing, if you will. You're seeing a bit of that in the European Union, but Germany does seem to be still wanting that access to the China market. How do you see this going forward? because the Chinese regime does subsidize industries. You don't really have that in the US. We also have a lot of regulation here. How do you see that playing out? How will the say freedom loving countries counter something like the Chinese regime in this sector? >> Well, I think um what you're seeing is people trying to figure out um can they count on the US? the European players on can they count on the US or do they need to be what I've heard one um trade um theorist called more promiscuous foreign policy where instead of working in a block or working with other freedom loving countries you kind of pick and mix based upon each circumstance in each year so you you certainly see the US right now as being very transactional and not necessarily principles based and I think that that's having an impact on European decision-m and I think the Europeans will be very transactional as well and I think that'll continue. Um, and for the US, I I it's going to be interesting how much manufacturing can really be brought back home. Um, in the automotive industry, I'm skeptical because the amount of investment is enormous that will be required to bring all the manufacturing back as well as just the cost base is very high and you don't have the the people, you know, so you know, one one of the big challenges, you must have the labor and people that are willing to do the jobs. In the US, labor costs are very high, which is good. you know, we want people to get paid great salaries and have a great wage. Um, and so I think for some of your cheaper cars, you know, things that are worth, you know, cost less than $35,000. I just cannot see the US are really being able to produce a competitive lowcost car. Um, I think it's really going to be still happening in places like Mexico. And so I think you're still going to see some regionalization of supply chain u for the automotive industry. I just still see that changing even with these tariff hits that are taking place right now. Definitely a lot to watch for here for sure. Kurt Hopkins, thank you so much for joining us. Great. Thanks for having me.