If Tesla's Got Troubles, Everyone Should Worry

(Bloomberg Opinion) -- Tesla Inc. so far has managed to deftly navigate the supply chain crisis and U.S.–China trade tensions that have hamstrung manufacturers globally. The EV maker's latest worries show it's about to get tougher for companies that hoped the worst was behind them.

Joining a host of other auto suppliers looking for tariff exclusions on various parts, Elon Musk's company submitted three comments to the U.S. Trade Representative supporting waivers on essential raw materials it needs to import from China. In them, Tesla says “natural graphite is currently not available in the specifications nor capacity outside of its current suppliers and China that is required” for it to manufacture EV batteries in the U.S. Tesla is requesting waivers on various forms of artificial and natural graphite.

That's a stark reversal of fortunes. Over the past few years — even through the trade war — Tesla emerged as a winner in China. It entered on favorable terms and set up its own venture, unlike other automakers that have had to operate in partnerships with ownership caps. The company also leveraged Beijing's EV-friendly policies to ramp up production and build out a deep supply chain in China. All of this meant that Tesla has been able to boost manufacturing substantially, even as rivals' plans were up in the air.

Fears of tariffs were eventually overtaken by Covid-19. Yet despite creaking supply chains and shortages, Tesla managed to make plenty of cars, exporting its latest models to Europe from China. Other car manufacturers were forced to temporarily halt production facilities. Tesla, too, has had its share of issues, but they have been far less severe than those of its peers. That's in part because of the way Musk, who has expressed his frustrations with the snarls in recent days, has handled the issues.

That Tesla is now struggling to procure a raw material only available (in the form it needs) in China, for a battery cell that it's trying to develop in-house, shows how the compounded effect of tariffs and the supply chain crisis are nowhere near over. These logistical delays and related issues are going from seemingly temporary manufacturing annoyances to real potholes that are slowing down development and production. Graphite is essential to making parts, or anodes, of EV batteries. Without it, Tesla could face even further setbacks unveiling a technology it has been trying to dominate. Meanwhile, others looking to boost U.S. manufacturing capacity won't be able to do it, either.

These may just seem like hiccups from constraints on moving materials around. However, they point to a widening issue. Consider this: The material Tesla needs – graphite – is also sought by other battery makers. In a comment submitted by South Korea's SK Innovation Co., the company said “there is currently not enough infrastructure in the U.S. that can deliver artificial graphite at the quantity and cost” it requires — similar to Tesla's submission. What's more, the firm noted that, because this material is so key, the higher costs will be passed on to U.S. consumers and American companies. If SK can't get it, then battery investment — a highlight of the U.S.'s EV and manufacturing policy — could struggle. 

So far, companies have reacted to the stresses as they've emerged, waiting for them to pass. But it's hard to see any long-term planning kicking in. Policy makers also have been slow to address the growing challenges. That doesn't bode well for the world's manufacturing complex. Even if a few signs of easing strains on supply do emerge, the damage is done. Few are prepared.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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