On March 27, the U.S. Administration announced a 25% tariff on all imported vehicles and foreign-made automotive parts, an attempt to strengthen domestic manufacturing. Currently, Tesla and Rivian stand out as the major EV automakers with a predominantly U.S.-built lineup.
In this analysis, we’ll explore the potential impact of these tariffs, examining key factors and what they mean for the industry moving forward.
Percentage of American Parts
One key item we want to point out here before we continue is that the NHTSA defines North American made parts as parts built in either the United States or Canada - Mexico is not included in this number. In November 2024, we found out the percentage of parts Tesla uses that come from the U.S. and Canada. At the top we have Tesla’s Model 3, which uses 75% North American parts.
We’ll be sticking with overall percentage of North American parts since we don’t actually know what percentage Tesla sources from Canada. We do know today that some cameras, essential die parts, and other key components are sourced from Canada for nearly every vehicle in Tesla’s lineup - so it isn’t an insignificant percentage.
Insulated from Tariffs?
At first glance, Tesla may seem insulated from these tariffs. However, its dependence on a global supply chain—particularly parts moving across the U.S.-Canada border under the US-Mexico-Canada Agreement (USMCA)—adds complexity to the equation. Additionally, potential retaliatory tariffs from Canada could further pressure Tesla, a trend already evident in the company being excluded from multiple EV incentives across the country.
While Canada isn’t Tesla’s largest market, it still accounts for a meaningful share of sales. Even a small decline in that market could have a noticeable impact on the company’s bottom line.
Domestic Advantage
Tesla’s domestic advantage is impressive—it manufactures all vehicles sold in North America at just two facilities: Tesla Fremont and Gigafactory Texas. The initial 25% tariff, set to take effect on April 2, 2025, applies to cars and light trucks assembled outside the U.S., likely dealing a heavy blow to competitors like Hyundai and Volkswagen. According to a Goldman Sachs report, these tariffs could drive up vehicle prices by $5,000 to $15,000.
However, this advantage is partially offset by exemptions under the USMCA. To avoid the full tariff, vehicles and parts must meet a strict “rules of origin” requirement, meaning at least 75% of components must come from the U.S., Canada, or Mexico. This exemption remains in place until May 3, 2025, when the second stage of tariffs kicks in—targeting non-U.S. content more directly.
Effectively, the NHTSA and USMCA’s existing framework for defining “North American-made” components is being upended. This shift plays to Tesla’s strengths, but to understand the full impact, we need to take a closer look at its supply chain.
Supply Chains
Tesla’s supply chain is deeply integrated across North America. Approximately 25% of the Model 3 Long Range RWD and AWD comes from Mexico - and some undefined percentage also comes from Canada. That number rises significantly for the other vehicle’s in Tesla’s line-up, which is available in the chart below from early November 2024.
Phase 2 of the tariffs will place an increasing impact on Tesla - especially as it won’t be simple nor quick for Tesla to move all part production to the United States.
Vehicle
Pct made in US/Canada
Model 3 LR AWD/RWD
75%
Model 3 Performance
70%
Model Y (All Variants)
70%
Cybertruck
65%
Model S
65%
Model X
60%
Battery Production
This is particularly evident in Tesla’s reliance on Canadian minerals, which are crucial for its battery production. Tesla sources key materials like nickel, lithium, and cobalt from Canadian mines, with most of these resources being shipped across the border in an unrefined state. Currently, these shipments face a relatively low 10% tariff from Canada. However, potential retaliatory tariffs could drive costs higher or even restrict access to these essential minerals.
While limiting access may seem extreme, Ontario has already threatened to halt nickel exports from Canada’s largest nickel mine to the U.S.—a move that could pose a serious challenge for Tesla.
Even Elon Musk has acknowledged that Tesla won’t emerge from these tariffs unscathed.
Important to note that Tesla is NOT unscathed here. The tariff impact on Tesla is still significant.
Tariffs are rarely a one-way street. Canada and Mexico are likely to respond with retaliatory tariffs on U.S.-made auto parts or vehicles. Both countries have already explored reducing EV incentives by excluding Tesla from certain rebates. Additionally, there have been discussions about imposing tariffs specifically on Tesla, partly due to Elon Musk’s political involvement.
Consumer Impact
Several scenarios impacting consumers can unfold in response to these upcoming tariffs.
In the short term, higher prices for competitors could drive more customers toward Tesla as they seek more affordable products. However, increased import costs could force Tesla to either absorb the expense or raise prices—potentially offsetting any sales gains.
Cox Automotive, a leading industry analyst, has warned that by mid-April 2025, North America could see reduced production, tighter supply, and rising vehicle prices. Tesla, despite its domestic production, won’t be immune to these effects due to its reliance on a continental supply chain.
To mitigate long-term costs, Tesla could explore securing domestic mineral rights—an expensive move initially but one that could provide stability if tariffs remain in place for years under the current administration.
However, Tesla CFO Vaibhav Taneja acknowledged during the Q4 2025 Earnings Call that the company remains heavily dependent on global parts sourcing. Given Tesla’s own admission of the impact, consumers should expect price increases as the company adjusts to the shifting trade landscape.
What to Take Away
Overall, the 25% tariff presents a double-edged sword for Tesla. While it may offer short-term advantages by making competitors’ vehicles more expensive, long-term, Tesla will also be impacted. Tesla’s reliance on cross-border parts, coupled with potential retaliatory tariffs, could quickly escalate costs and increase vehicle prices.
As the political landscape around tariffs continues to evolve on what seems to be a daily basis, Tesla will need to navigate these changes carefully. Tesla’s supply chain has been optimized for cost-effectiveness and efficiency. Any changes that happen could be driven by the new tariffs. Tesla may be forced to make changes that prioritize reducing tariff costs, potentially at the expense of efficiency. However, if these policies continue to evolve or if tariffs are later removed, Tesla is then stuck with a less-efficient supply change.
The company will likely address these challenges in detail during the Q1 2025 Earnings Call, though that remains several weeks away.
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Every Tesla vehicle is filled to the brim with modern and advanced features - and there is a massively complex network of devices powering that - from the FSD and infotainment computers, to the various networked sensors throughout the vehicle.
That massive network of wiring is traditionally run on a system called CAN, or the Controller Area Network - which was developed by Bosch all the way back in the 1980s. Since then, it has been the industry standard for in-vehicle part-to-part communication for decades.
However, just like the horse and buggy, it may be time for CAN to be put out to pasture as it struggles in the data-driven modern environment. Massive amounts of sensor data, high-resolution infotainment screens, over-the-air (OTA) updates, and centralized Electronic Control Units (ECUs) mean that the old standard just can’t keep up anymore.
Tesla is now actively developing and deploying a next-generation vehicle network to replace CANBUS, and this new network will likely function in synergy with the move to the new 48-volt low-voltage architecture being pioneered by the Cybertruck.
CANBUS - The Old Workhorse
CANBUS was originally developed in 1983, released in 1986, and then standardized by the International Standards Organization (ISO) as ISO 11898 in 1993.
It’s a venerable standard that was revolutionary at the time, as it drastically reduced wiring complexity compared to the point-to-point methods being used in the late 80s and early 90s, and saw immediate mass adoption across the entire industry.
CAN is a message-based protocol, where nodes broadcast data with identifiers. The priority of packets determines their movement and access. However, CAN 2.0 and CAN FD are both extremely limited - CAN 2.0 is limited to a glacial 1Mbps, and ~8Mbps for the more “modern” CAN FD.
CAN FD barely makes the mark for 1080p video streaming at 60fps - if it is pre-encoded. Unencoded raw video surpasses what CAN FD is capable of, and greatly limits its capabilities and usages in a modern data-first vehicle like a Tesla.
CAN is also complex - it is simpler than a point-to-point wiring system, but the multiple CAN buses and gateways result in a complex, heavy, and costly wiring harness that can be next to impossible to diagnose, repair, or replace.
Tesla’s Next-Gen Networking
Tesla’s next-gen networking is all about timing - and unlike CAN, where two messages coming in at the same time can collide (resulting in neither reaching the node), Tesla’s TDMA, or Time Division Multiple Access, assigns specific time slots. This means that access to each node or data point is guaranteed and avoids interference.
You can think of CAN being like everyone yelling in the same room - but TDMA being a tightly scheduled series of one-on-one meetings.
However, TDMA isn’t just a simple sorting system. According to Tesla's patent application, the network operates in repeating cycles. At the start of each cycle, a Network Allocation Map (MAP) is transmitted. Think of this MAP as the dynamic schedule for that cycle – it tells every node exactly which time slots are reserved for which communications. Each reservation specifies the transmitting node, the receiving node, the duration of the slot, and, crucially, the type of traffic it is for.
This allows for sophisticated Quality of Service (QoS) management, separating data into different categories. The patent specifically calls out two main types:
Low Latency (LL) Traffic: These are for critical, time-sensitive signals (think sensor readings for FSD, airbag triggers, control commands). They get assigned short time slots that repeat very frequently within the TDMA cycle (potentially every 500 microseconds, according to one example in the patent) to guarantee delivery within a strict maximum delay. The data packets themselves are kept small, maybe only tens of bytes, to fit these quick slots.
Bulk Traffic: This is for data where total volume is more important than millisecond-level delay (think infotainment data, camera video feeds, maybe larger data logs). These get assigned longer time slots, allowing for larger data packets (over 100 bytes in one example), ensuring high overall throughput even if they don't repeat as often as the LL slots.
This whole system relies on precise synchronization across all nodes. The patent mentions synchronization signals within the TDMA cycle and specialized modem hardware to keep everything perfectly timed.
The network can also be structured into logical domains (like front-left, cabin-right, etc.), each managed by a Domain Master node that handles the MAP and communication within that zone. So, TDMA isn’t just a sorting system; it's a highly managed network implementing traffic prioritization (LL vs. Bulk), dynamic slot allocation via the MAP, and potentially managed by centralized Domain Masters, all designed for efficiency and reliability.
48-Volt and LVCS
Many of these networking concepts appear designed to work hand-in-hand with Tesla’s recently-released LVCS - or Low Voltage Connector Standard. LVCS simplifies vehicle wiring networks by drastically reducing the number of connector types needed from over 200 down to just six. While the patent focuses on the data protocol, LVCS simplifies the physical layer, and the 48V architecture it's built on also enables using the vehicle's DC power lines as a potential network medium (PLC), helping to reduce complexity.
Tesla has been utilizing these new approaches in the Cybertruck, as evident in their new and unique interactive wiring diagram, which helps technicians debug wiring issues. We can expect even more features to take advantage of the new capabilities in the future.
48V also means thinner wires, which reduces costs, and LVCS simplifies the connectors on both the harness and nodes - which means less part complexity, further simplifying the manufacturing and supply chain, while also ensuring vehicles are more repairable.
Wrapping Up
This is another innovation that Tesla is introducing to its fleet - and while we initially looked at it and thought, “Wires? How boring,” we soon realized that it is, in fact, the skeleton that Tesla will use to build its future systems.
That means smoother, faster, and more robust FSD data transfer within the vehicle, resulting in snappier and more effective decision-making. A quicker and more functional infotainment system and better support for deep-reaching OTA updates due to the reduced internal complexity and lack of reliance on internal CAN buses, which couldn’t be updated.
This is a massive technological leap over the decades-old CAN bus system, and while it may be invisible to the average user, it is an excellent example of all the engineering that goes on in under the hood of every Tesla vehicle.
Tesla’s ambitious 4680 cell program has been pivotal for its vehicle roadmap - and in particular, for the Cybertruck. Bonnue Eggleston, Tesla’s Senior Director for the 4680 cell project at Tesla, recently sat down with Sandy Munro on Munro Live, offering valuable insights into cell development, manufacturing hurdles, and Tesla’s future trajectory. You can watch the video in its entirely below.
The 4680 cell, like many batteries, is characterized by its dimensions: 46mm in diameter and 80mm long. Tesla is currently producing the 2nd generation of the 4680 - internally known as the Cybercell - which is shipped with every variant of the Cybertruck. This Gen 2 variant is a considerable step up from Gen 1 - whose limited production was cancelled following the slow charging issues with the 4680 Model Y.
Prototypes are Easy; Production is Hard
Bringing the 4680 from a concept cell to mass production hasn’t been easy, but according to Tesla, it has now become Tesla’s cheapest cell per kWh. Eggleston emphasized in the video that scaling up was an immense challenge - and required an extreme attention to detail.
With a team possessing a broad skill set, it took considerable effort to bring the 4680 to life, starting from the raw electrode material and progressing through the crucial formation process.
Breaking Barriers
To overcome these hurdles, Eggleston’s team leaned into innovation and focused on new processes that had not been utilized in the battery world yet. The groundbreaking new dry electrode process is the key here, which eliminates the use of toxic solvents and large ovens required in traditional production methods. This reduces internal factory footprint, while also being cleaner and safer, building a better cell from the ground up.
Complementing this, Tesla has also been developing a custom electrolyte formulation in-house, tailored specifically for their anode, cathode, and separator materials, all aimed at expanding their deep vertical integration.
This vertical integration has been key to the 4680 program, and Tesla has further extended it, with in-house production of components like cell cans serving to optimize the process and reduce waste. Eggleston also pointed out the unique terminal design on the 4680, which allows for easier and more reliable welding, contributing to the high production output that Tesla is aiming for.
Sustainability
On the sustainability front, Tesla has been hard at work recovering and recycling materials right from the manufacturing line to minimize waste. Eggleston highlighted this as part of Tesla's effort to promote sustainability, which ties in with the environmental benefits gained from avoiding solvents in the dry electrode process.
Structural Battery Packs
While the 4680 is intrinsically linked to the Cybertruck, we expect Tesla to expand this to its future vehicles eventually - whether through use of the specific cell format, or the technologies learned through its development. Eggleston noted that the efficiency of the Cybertruck is partly due to his team’s cooperation and work with the vehicle team. The structural battery pack minimizes weight and provides additional support and protection to the cabin and occupants.
4680 in the Future
Eggleston expressed a considerable amount of confidence in Tesla’s 4680 program and the progress - citing significant improvements in throughput, yields, and product quality since he took leadership.
He acknowledged the ambitious targets that Tesla and Elon have set - and mentioned that the use of metrics like headcount per gigawatt helps drive production efficiently. This metric essentially measures labor efficiency – producing more battery capacity (gigawatt-hours) with fewer people indicates a more streamlined and cost-effective manufacturing process.
While Eggleston hinted at future developments, and we have previously heard of Tesla working on even more cells for the future, the battery technology race has been progressing rapidly around the world. While Tesla has been pushing 4680 production and deploying 325kW-capable Superchargers (and soon 500kW), they continue to face challenges from the competition.
Brands like China’s Zeekr are demonstrating new LFP batteries capable of charging from 10-80% in under 10 minutes, while achieving sustained speeds of 400kW+. Currently, the Cybertruck can only sustain the 325kW cap speed for a few minutes at best, resulting in a sub-par charging curve compared to upcoming competitors.
Tesla will have to focus on developing and producing new cells that maintain that cost-competitive advantage the 4680 has built, while also achieving faster charging speeds across its entire lineup. For now, these new faster charging speeds are restricted to the Cybertruck, but with refreshes for the Model S and Model X on the horizon, we expect that Tesla’s updated flagship vehicles will make the best use of this tech until it is ready for the rest of the lineup.
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