Car Industry

Tesla's request for tariff exemptions on Autopilot hardware was denied; here's why that's important

The computer brains behind Tesla's Autopilot are about to be a lot more expensive.

The computer brain that makes Autopilot work is made in China, and that's about to be a problem for Tesla.

Tesla

Tesla is an American car company. It's headquartered here, it currently builds its cars here, and that's all common knowledge. What maybe isn't as obvious is the fact that many of the components that go into making a Tesla come from elsewhere in the world, from places like China. And it's that last bit that Tesla is having problems with now.

See, according to a report published on Friday by Reuters, Tesla had been seeking an exemption from the federal government to tariffs imposed on things made in China. The exemption was specifically for the vehicle computer that is responsible for running Autopilot. Unfortunately, the US Trade Representative's (USTR) office rejected Tesla's application.

What does this mean for Tesla? In the short term, it means that Tesla's Autopilot computer is going to cost 25% more than it did before. In the long run, it's hard to say. The reason that Tesla had the computers made in China in the first place is that China is where the manufacturing expertise and hardware are.

"For a product as safety critical to consumers, and critical to the essence of Tesla, we turned to industry experts who could achieve this quality and complexity in addition to the deadlines, which was not possible outside of China," said Tesla representatives, in a statement.

The Autopilot computer exemption being denied isn't the last of the Big T's worries either. The US government's reasoning for denying the exemption comes from its opposition to an initiative in China called "Made in China 2025." The goal of this initiative is to increase manufacturing capacity in tech sectors traditionally dominated by American producers.

So, this means that Tesla's other requests for exemptions for other components, like Model 3's big center screen, for example, will also likely be denied for similar reasons. If that's the case, Tesla isn't totally without options, but they won't be painless.

First, Tesla could find producers for its components in countries that aren't subjected to the 25% tariff, but that would mean finding a new vendor and likely training a workforce. Otherwise, Tesla could bring production of those components in-house, which would again be inconvenient and expensive.

Tesla didn't immediately respond to Roadshow's request for comment.