President Donald Trump’s increasing tariffs on Chinese components have caused Tesla to halt its plans for US production of its upcoming Cybercab and Semi electric vehicles. As a result of the tariffs, Tesla’s plans to import necessary parts from China have been halted, which have gone up from an initial 34% to 125%. The company’s plans for mass production in 2026 and trial production in October are in jeopardy because of this action.
Tesla had initially planned to cover the extra expenses brought on by the 34% tariff, but the subsequent hike to 125% made it impossible to import the required parts, which is why it was suspended. The Semi truck is expected to be produced in Nevada, and the Cybercab is expected to be produced in Texas.
“In response to the imposed tariffs, Tesla has pursued a strategy of enhancing the percentage of sourced components from North America over the past two years. However, this strategic adjustment has not alleviated the challenges posed by the global complexities inherent in Tesla’s supply chain. In a reported plea to President Donald Trump, Elon Musk, the CEO of Tesla, has underscored the pivotal role of a global supply chain in the manufacturing process, emphasising its importance,” Reuters reported.
Not only Tesla but other automakers also have voiced concerns about the higher expenses and possible operational disruptions, including Ford, General Motors, and Stellantis. The tariffs have also had an impact on industry-wide production schedules and consumer prices.
Donald Trump recently said that he was considering a modification to the 25% tariffs imposed on foreign auto and auto parts imports from Mexico, Canada, and other places. Those tariffs could raise the costs of a car by thousands of dollars, and Trump said car companies “need a little bit of time because they’re going to make ’em here.”
The long-term impacts on the US automotive industry and its competitiveness in the global market will be closely monitored by stakeholders as the situation evolves in the coming days.
Experts see the disruptions resulting from the 25% tariffs hindering innovation, apart from affecting the uptake of electric vehicles and, most importantly, forcing businesses to look into alternate sourcing and manufacturing markets.
Tesla is also seeking approvals from the American state governments as it plans to roll out a robotaxi service with a fleet of Cybercabs. In October 2024, it unveiled a robotaxi concept that had no steering wheel or control pedals and promised to start building the two-door model by 2026 at a price of less than USD 30,000. Tesla also plans to ramp up production of the Semi electric trucks in 2026 and accelerate deliveries of long-overdue orders to customers including Pepsi.
The impact on the key business plans for Tesla reflected how Donald Trump’s tariffs, which were meant to boost US local manufacturing, have hurt his ally Elon Musk, who has repeatedly said on his social media posts on X (formerly Twitter) that he supported free trade and objected to tariffs.
Tesla has also stopped taking new orders for Model S and Model X as China imposed a retaliatory 125% tariff on American goods. To make matters worse, the electric vehicle giant’s long-awaited plans for an affordable car, including a US-made, stripped-down version of its best-selling electric SUV, the Model Y, have suffered a setback as the production launch has reportedly been delayed.
Tesla promised affordable vehicles beginning in the first half of 2025, providing a potential boost to flagging sales. Global production of the lower-cost Model Y, internally codenamed E41, is expected to begin in the United States.
However, that would occur at least a few months later than outlined in Tesla’s public plan, Reuters stated, quoting its sources, who also offered a range of revised targets from the third quarter to early 2026.
Two of the people said Tesla aimed to produce 250,000 of the cheaper Model Ys in the United States in 2026. The new vehicle is also planned for eventual production in China and Europe.
“The less expensive mass-market vehicles have been widely anticipated by Tesla fans and investors who hope they will attract a fresh group of customers and reverse the EV maker’s falling sales and eroding market share. Tesla also has refreshed its original Model Y with exterior and interior changes. The Long-Range All-Wheel Drive version in the United States costs about USD 49,000, before a USD 7,500 federal tax credit,” Reuters reported further.
There were reports about the China launch of the E41 occurring in 2026. The E41 will be smaller and cost 20% less to produce than the refreshed Model Y. The timing of the rollout in Europe is not clear. Tesla is also planning to launch a bare-bones version of its Model 3 compact sedan.
The EV maker on January 2 reported its first decline in annual deliveries in 2024, and analysts expect sales to fall again in 2025 for several reasons, including damage to the brand reputation by Elon Musk’s close work with Donald Trump and support of far-right European politicians.
Elon Musk earlier promised a new, cheaper EV platform with cars expected to be priced as low as USD 25,000, but dropped that to prioritise robotaxi development. Tesla has increased North American sourcing for parts of many models over the last two years, which would reportedly decrease tariff exposure for the E41.