Can American Giants Win Their Gamble on 'Decoupling from China'?

Recently, two reports from foreign media have consecutively dropped two "depth charges" on the automotive industry.

First, Reuters reported that General Motors has instructed its suppliers to completely eliminate Chinese-made components from the supply chain of North American-produced vehicles by 2027. Subsequently, The Wall Street Journal also disclosed that Tesla has sent letters to some suppliers, requesting that Chinese-made parts not be used in its U.S.-produced vehicles.

These two American car companies, representing traditional giants and emerging forces, demonstrate remarkable consistency in their supply chain strategies, indicating that this is no longer an isolated risk avoidance behavior by individual companies, but rather a collective strategic migration sweeping across the entire industry under the triple pressures of geopolitics, industrial policies, and supply chain security.

Tesla and General Motors' "de-China" directive in North America.

On November 15th local time, The Wall Street Journal, citing sources familiar with the matter, reported that after Tesla decided to stop using Chinese suppliers for its U.S.-made cars earlier this year, the company is now requesting suppliers.Does not use Chinese-made parts in its cars produced in the United States.。

Image Source: Screenshot from "The Wall Street Journal" report

Since the COVID-19 pandemic disrupted the flow of goods from China, Tesla has been striving to reduce its American-made cars' reliance on parts manufactured in China, increase local procurement in North America, and encourage its Chinese suppliers to set up factories and warehouses in other locations such as Mexico and Southeast Asia.

The United States is Tesla's largest market, and the Tesla cars driving on American roads are produced by the company's factories in the U.S. In China, Tesla's Shanghai factory produces cars that mainly use locally sourced components. The cars manufactured at the Shanghai factory are sold both domestically in China and overseas, primarily to Asia and Europe, but not to the United States.

Over the years, Tesla's Chinese suppliers have increasingly shipped components globally for use in Tesla's factories elsewhere. A China-based executive stated earlier this year that the Shanghai factory has about 400 direct Chinese suppliers, more than 60 of which supply Tesla's global production.

This year, after President Trump imposed high tariffs on Chinese imports, Tesla accelerated its strategy to reduce reliance on Chinese components. Currently, Tesla and its suppliers have replaced some Chinese-made components with parts produced elsewhere.It is planned to replace all other components of American-made cars with non-China manufactured products within the next one to two years.。

Tesla's move is the latest example of international car companies seeking to "de-China" their supply chains. Prior to this, General Motors was reported.Thousands of suppliers have been instructed to remove Chinese components and raw materials from their North American models, with the ultimate goal of completely withdrawing the supply chain from China.

Image source: Screenshot from Reuters report

General Motors executives have been informing suppliers to find alternative sources for raw materials and components outside of China, and have communicated this directive to some suppliers as early as the end of 2024. GM North America requires suppliers to...Sort out all components related to China, including semiconductors, sensors, castings, wiring harness components, lighting, in-car electronic devices, and even low-cost fasteners that have long depended on China's large-scale manufacturing. Prepare to establish alternative production lines in North America, Europe, India, and other regions not subject to U.S. restrictions.。

With the escalation of Sino-U.S. trade tensions this year and increased supply chain risks, General Motors North America has now set deadlines for some suppliers, requiring them to terminate procurement cooperation with China by 2027.

In fact, General Motors CEO Mary Barra previously mentioned plans to shift more of the company's supply chain to the United States. In October of this year, during General Motors' third-quarter earnings call, Mary Barra stated: "Over the past few years, we have been working hard to enhance the resilience of our supply chain. The company will procure components as much as possible in the country where the vehicles are produced."

Why has "decoupling from China" become so urgent all of a sudden?

The decision between General Motors and Tesla seems sudden, but it is actually a total explosion of structural contradictions accumulated over many years under the influence of specific catalysts. The driving forces behind it are complex and profound, intertwining national will, market logic, and security considerations.

From a geopolitical perspective, China, as the largest strategic competitor of the United States, has faced increasing restrictions and suppression from the U.S. in recent years, leading to ongoing trade frictions between the two countries. Data shows that since 2018, the U.S.-China trade tensions have resulted in tariffs on goods worth billions of dollars. By 2025, tensions between the U.S. and China further escalated, with the U.S. imposing high tariffs on Chinese electric vehicles, batteries, and rare earth materials. In response, China's Ministry of Commerce implemented controls on the export of certain rare earths, triggering supply chain security concerns.

From the perspective of U.S. national strategic policy, both the Trump administration and the Biden administration adhere to the "America First" manufacturing principle, aiming to achieve the return of supply chains and the revival of the manufacturing sector. The U.S. has established a subsidy pool totaling hundreds of billions of dollars through a series of legislation such as the CHIPS and Science Act and the Inflation Reduction Act.

The provisions of the Inflation Reduction Act regarding electric vehicle tax credits stipulate that vehicles must be finally assembled in North America, and a certain percentage of key minerals in the battery must come from countries with which the United States has a free trade agreement, gradually excluding components and raw materials from "foreign entities of concern."

This is no longer a simple trade barrier, but rather a carefully designed "carrot and stick" policy system. On one hand, tax benefits and subsidies are offered to companies that repatriate, while on the other hand, high tariffs are imposed on companies that continue to produce in China and on products imported from China. Under this dual pressure, multinational companies like General Motors and Tesla have to reassess their supply chain arrangements.

In fact, as early as the beginning of 2023, American automotive giants began to respond to government calls and laid out plans for "decoupling" their supply chains from China. Starting in 2023, General Motors began shifting its supply chain in several key areas, including chips, batteries, and rare earth materials, continuously opting for non-Chinese suppliers. Tesla even started producing lithium iron phosphate batteries domestically in the United States.

Accelerating this strategy is the tariff war that Trump escalated earlier this year, which once raised tariffs on Chinese products to 150%. Although the U.S. and China have reached a temporary agreement, tariffs on Chinese imports remain at 30%. The high tariffs have imposed heavy cost pressures on businesses. According to reports, since the implementation of the tariff policy in April this year, General Motors has incurred a cumulative loss of $1.1 billion; Tesla also lost $400 million in the third quarter of this year due to tariffs.

In addition, the recently escalating ASML semiconductor conflict has reignited the fire of "de-China" in the supply chain. Reports indicate that the Dutch government has suddenly taken over ASML due to pressure from the United States, which has led China to suspend product exports from ASML's Chinese factories, triggering a global chip supply crisis. This is undoubtedly adding insult to injury for the automotive industry, which is already facing multiple challenges such as weak demand, rising costs, trade tensions, and tariff pressures.

All of the above has forced automotive companies to fundamentally change their supply chain management philosophy: from decades of pursuing "just-in-time production," with an extreme focus on efficiency and low costs, to emphasizing redundancy, resilience, and safety in a "backup chain" mentality. The assessment of supply chain "vulnerability" has now completely overshadowed the consideration of "cost."

As Shilpan Amin, General Motors' global procurement chief, stated at a conference in October, the risk of supply chain disruptions has forced companies to change their strategies, no longer simply choosing to source from the lowest-cost countries. "Resilience is crucial—ensuring stronger control over the supply chain and having a clear understanding of the source of each material."

Decoupling the supply chain from China is not that easy.

However, is the ambitious "decoupling from China" gamble by General Motors and Tesla a strategic shift that is bound to succeed, or is it an expensive adventure coerced by politics and disconnected from reality? Can the foundation of the global automotive supply chain really be so easily shaken?

Image source: Tesla

China's automotive supply chain, developed over decades, is far more than a simple collection of factories; it is a vast, efficient, deeply collaborative, and highly innovative ecosystem. Currently, China holds a dominant position in several areas of the automotive supply chain, such as electric vehicle batteries and raw materials, automotive lighting, electronic equipment, and mold manufacturing for custom parts. These sectors of the supply chain have been established for a long time.

Taking the battery industry, which is core to electric vehicles, as an example, China controls over 68% of the global battery production capacity and has formed a complete closed loop from lithium ore smelting, cathode and anode materials, separators, electrolytes to battery manufacturing and recycling. This cluster effect has brought unparalleled efficiency and resilience: suppliers are geographically close, communication costs are extremely low, and technological innovation rapidly iterates through fast interactions between upstream and downstream.

Uprooting such a highly mature ecosystem and transplanting it to North America is by no means a task that can be accomplished in just a few years. It involves not only capital expenditure and equipment relocation, but also the overall migration of skilled workers, management experience, engineering teams, and even the "tacit knowledge" inherent in the industrial atmosphere, which are core competencies that cannot be replicated in the short term.

General Motors' North American suppliers have warned that some of the supply chains currently established in China have been gradually built over 20 to 30 years. If General Motors aims to achieve its 2027 target, dismantling and rebuilding these supply chains in a short period will be highly complex and costly, potentially requiring new factories, new partners, and significant capital investment.

According to research by the Massachusetts Institute of Technology, the initial costs of supply chain relocation may increase by 30%-50%. First, there are the high upfront costs of factory construction and equipment investment. Against the backdrop of ongoing global inflationary pressures, one-time capital expenditures for building factories and purchasing production lines have generally surged, often reaching hundreds of millions of dollars.

Secondly, there is a change in the labor cost structure. Although nominal wages are lower in regions such as Southeast Asia, there is a considerable gap in labor efficiency and skill compared to China. When converted to the comprehensive cost per unit of output, it is not necessarily lower.

The third issue is the rise in logistics and operational costs. After the supply chain is fragmented, cross-regional transportation, in-transit inventory, and coordination costs will all increase, making it difficult to match the overall operational efficiency of China's integrated system.

Finally, there is the cost of quality and yield. A new supply chain system often requires a longer ramp-up period, during which scrap rates, rework rates, and related hidden losses will significantly increase, creating additional burdens before quality stabilizes.

Who will bear the burden of this substantial increase in costs? Will it compress the already thin profits of the automakers, or will it be passed on to consumers? In the current climate where corporate profitability is generally challenging, this is undoubtedly a critical dilemma concerning survival.

Moreover, shifting the supply chain to locations such as Mexico and Southeast Asia may seem like a shortcut, but it is actually fraught with complexities. Take Mexico as an example; as a member of the USMCA, it enjoys tariff advantages for exports to North America. However, Mexico's manufacturing base, especially in high-tech and high-complexity component sectors, is far from reaching China's level. Its local supply chain is not complete, and a large amount of raw materials and semi-finished products still need to be imported from Asia (including China). This results in the so-called "non-China" supply chain possibly being merely a change in the "final assembly location," with its core value chain still deeply reliant on China.

Even the chairman of the Motor & Equipment Manufacturers Association (MEMA), Collin Shaw, admitted that although current automakers and suppliers have been striving to reduce supply chain risks, particularly trying to decrease the proportion of procurement from countries like China, the reality is that North America has been highly dependent on the Chinese supply chain for decades, and this dependency is difficult to change in the short term.

The global automotive supply chain landscape is being reshaped.

The dilemma and choices faced by General Motors and Tesla are a microcosm of the reshaping and restructuring of the global supply chain landscape. The future development of the supply chain will inevitably exhibit several clear trends:

From globalization to regionalization, the "three-pole pattern" is accelerating.Based on changes in geopolitical and trade rules, a regional supply chain system centered around China, North America, and Europe is accelerating its formation.

• China's chain: It will focus more on serving the vast domestic market and leverage the first-mover advantages and technological moats established in the fields of electrification and intelligence. Through methods such as technology licensing and building factories overseas (like CATL's in Germany and Hungary), it will deeply embed itself in and influence the global supply chain system in a new way.

• North American chain: Driven by strong policies, a closed-loop supply chain will be built around the rules of the Inflation Reduction Act, focusing on the United States and Mexico while striving to exclude "foreign entities of concern."

• European chain: Similarly seeking strategic autonomy, accelerating domestic battery manufacturing, reducing reliance on a single external supply chain, and attempting to establish its own carbon barrier system.

The complete revolution of the supply chain model: from "Just-In-Time" to "Backup Chain."The chip shortage during the pandemic and geopolitical crises have completely declared the vulnerability of the "just-in-time" model under extreme shocks. Automakers are shifting from the pursuit of extreme efficiency in "lean production" to the pursuit of supply chain resilience in "risk management."

In the new "backup chain system" model, automakers will focus on multi-source supply and geographical diversification; for key components, they will spare no expense to cultivate second and third suppliers, intentionally distributing them across different geographical regions. On the other hand, companies will emphasize vertical integration and strategic alliances, extending into upstream key resources (such as lithium, cobalt, nickel) and technology fields through direct investment and equity participation to strengthen control.

Third, the politicization and value-driven aspects of the supply chain will become increasingly prominent.Future competition is not only about business but also about competition in technological routes and standard systems. The United States attempts to establish new "green barriers" and "value barriers" through measures like "carbon footprint," "labor standards," and "data security," excluding products that do not meet its standards. Meanwhile, China is actively developing its own standards for intelligent connected vehicles and vehicle-road collaboration technology. The automotive supply chain has become the forefront battleground in this smoke-free technological cold war.

Summary: A long, painful, and costly transformation

The wave of supply chain "de-Sinicization" initiated by General Motors and Tesla is a transformation of the global industrial chain, triggered under "political pressure", destined to be long, painful, and costly. It clearly reflects the profound contradiction and difficult balance between national security logic and global industrial division of labor logic.

In the short term, the directives from the giants seem more like a political statement, a posture of risk avoidance, and a necessary measure in response to policies. Fully implementing them faces numerous challenges, especially in the field of low-value-added and high-complexity components. The comprehensive advantages of China's supply chain in terms of cost, efficiency, and ecosystem will remain the cornerstone that the global automotive industry, particularly the electric vehicle industry, cannot completely bypass in the foreseeable future.

If General Motors and Tesla complete the transition to "de-China" their North American supply chains, it will set a new benchmark for the automotive industry. As international trade barriers tighten, geopolitical risks increase, and the pressure to reduce reliance on a single country intensifies, more automakers may accelerate the regionalization of their supply chain layouts.

In the long term, the regional restructuring of supply chains is an irreversible trend. However, this is not simply "de-Sinicization," but rather a reorganization of structure and rules under "re-globalization."For Chinese supply chain enterprises, the challenges are unprecedented, but opportunities coexist. Under pressure, the transformation and upgrading of China's local supply chains towards technology-intensive and high value-added segments will inevitably accelerate. Meanwhile, a number of visionary Chinese suppliers have already initiated global layouts, building factories in regions such as Mexico, Eastern Europe, and Southeast Asia through "going global," actively integrating into new regional supply chain systems and transforming from a "Chinese supplier" into a "global supplier."

The choice between General Motors and Tesla is merely the prologue to this great transformation.