In the week of US President Donald Trump’s reelection in November 2024, Tesla’s vice president of vehicle engineering, Lars Moravy, led a team to visit the company’s supply chain partners across China.
Sensing an imminent return of the former president’s trade war tactics, Tesla began mobilizing its Chinese suppliers to diversify production into Southeast Asia and other regions, preparing for a looming wave of tariffs.
Battery makers like Eve Energy and Sunwoda received clear signals and launched a series of investments in Thailand. But Tesla only foresaw the beginning—not the devastating end. The tariff storm arrived with hurricane force.
On April 2, Trump announced the establishment of a 10% “baseline” tariff, with additional levies on Chinese goods rising sharply—climbing from 34% to 145% in a matter of weeks.
Tesla, heavily reliant on Chinese-made components for the Cybertruck, found itself racing against time. Yet while Tesla and other US automakers scrambled, China’s electric vehicle supply chain barely flinched.
The decoupling between the US and Chinese automotive industries is no longer a shock. In 2024, China exported just 116,000 vehicles to the US, accounting for only 1.8% of its total car exports. Most of these were from joint ventures, with virtually no direct exports from independent Chinese passenger car brands.
Imports moved even less.
The complexity and long lead times of global automotive supply chains meant they were highly sensitive to geopolitical shifts. Facing tariff risks, Chinese carmakers had already taken defensive measures well in advance.
Chinese automakers planned early, foreign brands took the hit
Due to restrictions on chip wafer production sites, companies like Nio and Xiaomi still source silicon carbide chips from US firm Wolfspeed.
“Evaluations show that the cost of silicon carbide chips per vehicle could rise by a few thousand RMB,” a source said. Although not negligible, Nio quickly secured an alternative supply from Onsemi’s wafer fab in South Korea and expects to switch soon.
Other Chinese carmakers have felt even less impact.
An insider at Li Auto revealed that while some secondary suppliers still rely on chips from Texas Instruments (TI) and Analog Devices (ADI), replacements are readily available and inexpensive—just a few RMB per chip. Even absorbing a 100% tariff would barely make a dent, especially with costs shared across the supply chain.
“Preliminary estimates suggest that the total cost increase per vehicle would be just a few hundred RMB,” the insider said—so minor that detailed reports to top management weren’t even necessary.
Even SAIC General Motors (SAIC-GM), a joint venture heavily associated with US brands, had already insulated itself from the impact through years of supply chain localization.
“Since 2018, SAIC-GM has been reducing direct imports from the US. For example, out of thousands of engine parts, only four are still sourced from the US, and we’re now accelerating domestic alternatives,” a GM engineer told 36Kr. Including inventory and goods in transit, “if the new tariffs kick in, the annual estimated loss would be less than RMB 10 million (USD 1.4 million).”
While Chinese carmakers stayed composed, US brands operating in China felt the squeeze.
In the first week of the tariff storm, Tesla suppliers rushed to audit components moving between China and the US.
“Tesla’s localization rate in China is extremely high, so the number of parts shipped from its US headquarters is limited—mostly standard low-cost chassis parts, which can easily absorb the impact,” an industry source said.
However, Tesla’s US factories still rely heavily on parts imported from China.
The Cybertruck, a product close to Elon Musk’s heart with its futuristic design, features an entirely new technical architecture—including 48V low-voltage batteries supplied by Zhuhai CosMX Battery’s Chongqing plant. After a 145% tariff, the battery’s cost could account for over 50% of the vehicle’s total cost.
Although Tesla had planned to shift production to Sunwoda’s Thailand plant, the new tariffs hit before the facility could come online. It remains months away from mass production.
Ford also faced heavy losses. Despite years of localizing its China operations, key components for its high-end models—such as turbochargers for engines—still depend on US imports.
After a 125% tariff increase, the feasibility of producing some models crumbled.
Sources told 36Kr that production of Ford’s Mustang electric SUV at its Chongqing plant has nearly ground to a halt, with thousands of units affected annually.
Ford also announced it would suspend exports to China of the F-150 Raptor truck, Mustang sports car, Bronco SUV, and Lincoln Navigator, all produced in Michigan and Kentucky.
According to insiders, Ford’s CEO appealed to Trump early on, warning that the tariffs would hurt Ford’s growth, as a significant share of Ford China’s profits comes from vehicle exports—especially Lincoln’s luxury models to the US.
Automotive supply chains are intricate and fine-tuned. China produces more than 20 million cars a year, while the US trails with about 15 million. Historically, the global automotive supply chain was a marvel of interconnectedness: plastic resin from Europe for interiors, chip designs from the US, manufacturing in Taiwan, testing in Malaysia, and battery materials from Africa and Indonesia processed in China.
Yet in this trade war, China’s automotive supply chain held firm, becoming an unexpected case study in decoupling.
The underlying reason is not complicated. Given the high complexity and long lead times of supply chain shifts, automakers naturally favor conservative, defensive strategies whenever risks emerge.
Simply put, when Trump first wielded tariffs during his first term, Chinese supply chain engineers had already started building contingency plans.
Preparing for the worst
Cost, quality, and stability form the tripod of automotive supply chains. Since the pandemic, stability has become paramount.
Mature and large-scale carmakers routinely assess geopolitical risks as part of supply chain audits, modeling worst-case scenarios.
“We prepared for the worst: full decoupling,” a supply chain manager said. “Nobody wanted it, but we couldn’t afford to be naive.”
Parts sourced from the US became primary targets for risk mitigation.
Companies even scrutinized whether key electronics suppliers were heavily controlled by Wall Street investors—because tariffs could crush profits, prompting US companies to abruptly exit certain markets.
Whenever cost savings tempted firms to use US-made components, they also developed parallel localized or backup supply options.
For example, many automakers still use TI chips because they are mature, non-core power management chips with highly competitive prices. But should tariffs significantly raise costs, switching would pose no technical hurdle.
Similarly, Gentex, a major US supplier of automotive mirrors, remains attractive because of cost. However, if tariffs make Gentex parts too expensive, Chinese automakers could quickly pivot to domestic alternatives.
Nio insiders shared with 36Kr that its rapid shift from Wolfspeed to an alternative was only possible because validation of backup options commenced as early as two years ago. This risk awareness isn’t limited to the supply chain—it’s embedded in Chinese carmakers’ global market strategies.
Brands like Nio and Li Auto see the US as a key market alongside China and Europe. Early user surveys showed strong potential appeal in the US. Li Auto even explored setting up a factory in Mexico but ultimately abandoned the plan due to policy unpredictability, avoiding what seemed like a risky investment.
Sure enough, in September 2024, the Biden administration slapped an additional 100% tariff on Chinese EVs.
Supply chains can survive—but not thrive—on independence
China’s conservative strategy helped its automakers weather the tariff tsunami. For foreign brands, the same tariffs have undercut years of localization work.
Tesla is now scrambling to shift production to Southeast Asia. However, within the automotive industry, it is common knowledge that the region’s weak electricity infrastructure poses a major bottleneck for heavy manufacturing.
An executive at a German automotive parts company shared that a colleague from India marveled at how power outages were virtually nonexistent in China during a visit there.
Another battery industry insider revealed that at his company’s Thailand plant, energy-intensive equipment like large ovens could barely operate during daytime hours, making continuous production impossible.
Despite these constraints, once supply chain diversification begins, it becomes difficult to stop. Following the US government’s tariff hikes, German firms in China have also been advised to relocate production to Eastern Europe.
An executive at a German fastener company said its US branch stockpiled Chinese-made inventory after Trump’s reelection, but supplies are running low.
He expressed deep skepticism about US manufacturing: “First, you can’t hire enough workers. Second, quality control is worse than China. Third, prices are much higher.” Still, if the tariff war drags on, options may narrow to either manufacturing in the US or raising prices year after year.
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For luxury carmakers like BMW and Mercedes-Benz, closing off supply chains also stifles innovation.
Both brands continue to import key electronic components from the US and Europe, especially critical safety sensors for speed, steering, and component status.
BMW engineers told 36Kr that Chinese employees are rarely involved in developing or testing these parts. Even for localized production, suppliers liaise directly with German R&D teams.
Mercedes-Benz added that while basic materials, molds, and testing standards can be localized easily, replicating the intricate manufacturing processes behind electronics remains difficult.
For critical components like airbags—designed to save lives in an instant—luxury automakers still prefer US and European suppliers, despite China’s manufacturing strength.
On April 23, signals of a potential softening in the US tariff stance emerged. But for the automotive supply chain, vigilance remains paramount.
“When planning global operations, we don’t just look at the next one to two years,” said an executive at a leading parts company. “We plan five to ten years ahead—or longer.”
Regional supply chain independence is fast becoming the norm. For some European luxury brands, producing in China for China and in the US for the US is now standard strategy.
The broader question is whether full decoupling in such an interdependent space sends a warning for global trade. If even the automotive industry can be split down geopolitical lines, what comes next?
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Xu Caiyu for 36Kr.