Tesla’s design and engineering of its Model 3 and other electric vehicles has suffered a setback as U.S. trade officials reject the company’s bid for relief from President Donald Trump’s inhibitive 25-percent tariff on Chinese imports.

Tesla had earlier filed for tariff exclusion in July 2018 to help reduce the costs of bringing in the 3.0 Autopilot electronic control unit which it describes as “the brain of the vehicle.” This part, however, is one of over 1,000 product denials in the U.S. linked to China’s industrial development plan – “Made in China 2025”, including biotechnology instruments and aircraft parts.  

The Made in China 2025 program is an ambitious Beijing powered program looking to develop China’s prowess in 10 strategic and important industries currently dominated by he United States. These include the semiconductors, artificial intelligence, aerospace and autonomous vehicles industries; and the program has been at the heart of the ongoing U.S-China trade war.

According to documents obtained by Reuters from the U.S Trade Representative’s office (USTR), the part has been deemed “strategically important” to the Chinese program which U.S. officials are battling to ground to a halt as the Trump administration continues on its efforts to thwart China’s attempts at developing high-technology industries which Washington alleges have benefited from illegal transfer of U.S. intellectual property and theft. 

The company is one of many to have been caught in the crossfires, and it currently has a separate pending request for tariff exclusion on the Chinese-made Model 3 Car Computer and Model 3 Center Screen before the USTR. 

In a securities filing on Monday, Tesla noted: “Our costs for producing our vehicles in the U.S. have also been affected by import duties on certain components sourced from China.” The statement follows the theme of its requests where it warned that “increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact profitability.

Tesla told the USTR it has been unable to find manufacturers in the United States for those parts, and that any other supplier they worked with will delay the Model 3 program by as much as 18 months. Even then, it claims to reflash the Autopilot ECU with a firmware created in California, because “we cannot risk our customers’ lives due to a defect from a supplier.”

This denial by the USTR now means that trade officials have denied almost half the nearly 13,000 tariff exclusion requests they have received since the new tariff came into play. For now, Tariff has made no specific comments on the denial. 


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