Musk Fights Tariffs on Graphite From China

A shard of graphite ore. (Christinne Muschi/Bloomberg News)

[Stay on top of transportation news: Get TTNews in your inbox.]

Elon Musk’s Tesla Inc. is spearheading an effort to block new tariffs on graphite imports from China, pitting Donald Trump’s richest backer against the president’s favorite economic tool.

Graphite is an essential component in the lithium-ion batteries that power electric vehicles, and China makes more of it than any other country. It is currently subject to U.S. tariffs of 25%.

Yet U.S. graphite producers argue that their Chinese counterparts keep their prices artificially low. They have asked the federal government to impose much steeper tariffs, which they say would help a critical new domestic industry take root, even if it drives up costs for Tesla and other companies that build EVs in America.

On Jan. 31, the U.S. International Trade Commission voted for the Commerce Department to proceed with an investigation that could lead to tariffs on Chinese graphite of as high as 920%.

Image

Musk 

U.S. graphite producers have benefited from grants doled out by the Biden administration, which was eager to foster domestic supply chains for critical minerals to lessen the country’s dependence on China and revive its manufacturing sector.

Still, the companies say more steps are needed to level the playing field. They argue that the effect of low-cost Chinese imports is too great for them to secure the necessary financing to build the processing power that the EV industry demands.

The showdown is an early test of Musk’s influence within an administration he helped bring to power, and in which he holds his own quasi-governmental role.

While nominally in charge of the Department of Government Efficiency, it isn’t clear whether Musk is an employee of the executive branch, which would make him subject to criminal conflict-of-interest statutes barring him from weighing in on matters affecting his businesses.

“It’s an obvious conflict,” said Richard Painter, a professor of corporate law at the University of Minnesota who was the top ethics lawyer in President George W. Bush’s White House. “This is the problem — we don’t know whether he’s in the government or out of it.”

Musk didn’t respond to requests for comment.

If confirmed as Trump’s Commerce secretary, Howard Lutnick could be forced to decide between the president’s goals and Musk’s commercial interests. Graphite, a form of carbon that conducts electricity, is the largest component by volume in an EV battery.

Image

Lutnick 

Lutnick and Musk worked closely together on Trump’s transition, when the two men spent weeks at Mar-a-Lago evaluating personnel choices. Musk even endorsed Lutnick for Treasury secretary during a contentious fight that was eventually won by Scott Bessent.

Ultimately, Trump put Lutnick, the former CEO of investment bank Cantor Fitzgerald, in charge of overseeing his trade and tariff strategy. At his confirmation hearing this week, Lutnick repeatedly hailed tariffs as an economic tool, particularly for dealing with China.

“I take a very jaundiced view of China,” he said. “I think they only care about themselves and seek to harm us, and so we need to protect ourselves. We need to drive our innovation, right? And we need to stop helping them.”

Lutnick also vowed to work to bring mining and production of critical minerals like graphite back to the U.S., and embraced using tariffs as a means to do so. “It is important for American national security that the key rare earths and minerals we create ourselves,” he said.

Anti-dumping tariff cases have long been conducted in a quasi-judicial process meant to be free of politics. The Commerce Department’s probe could take months, though Lutnick, if confirmed, would have the power to intervene and mediate a settlement, something some people close to the case said they expect to happen.

The Commerce Department, the White House and a spokeswoman for Lutnick didn’t immediately respond to requests for comment.

Tesla and other companies, like battery maker Panasonic, say tariffs are a blunt instrument that will drive up production costs and make EVs more expensive for consumers.

Tesla spent years successfully seeking exclusions for graphite from Trump’s first-term China tariffs, but the Biden administration declined to extend them last year. On a company earnings call on Jan. 29, Chief Financial Officer Vaibhav Taneja said tariffs could be painful for Tesla.

“Over the years, we’ve tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses,” Taneja said. Tariffs “will have an impact on our business and profitability.”

Tesla said in federal filings this month that it relies on Chinese graphite imports because the domestic industry hasn’t developed enough to meet the quality standards and volume that the carmaker requires.

The industry’s fate “lies with these companies’ ability to do the hard technical, scientific work needed to meet customer specifications,” Matthew Nicely, Tesla’s lead lawyer and a partner at Akin Gump, wrote in a January filing.

At an ITC hearing earlier this month, Tesla battery executives said they were in the process of moving their supply chain to the U.S.

A major incentive, they said, was a requirement that EV batteries not include Chinese raw materials by 2027 in order for consumers to qualify for a $7,500 tax credit — though Trump and Musk have both discussed eliminating that sweetener.

The executives said it could still take years to develop a domestic graphite industry that can produce material with the purity required for EV cells.

“Additional duties would not speed up that process,” said Dinesh Swamynathan, the company’s senior director for battery cell supply chain.

The companies seeking tariffs have all announced major investments in the U.S. and received federal loans and grants under the Biden administration’s Inflation Reduction Act.

Syrah Resources, an Australian-based company, has built an anode material production plant in Vidalia, La. It signed an agreement with Tesla for the carmaker to buy the bulk of its production once the plant qualifies as a Tesla supplier.

“This could be a profitable industry” that meets the policy goals of the government, Syrah executive Viren Hira said at the ITC hearing. “But this has not happened, in large part because China sells to the U.S. market at unreasonably low and unfair prices.”

India-based Epsilon Advanced Materials is planning a $1 billion plant to make graphite near Wilmington, N.C., that is due to start production in 2027. But that investment is being threatened by Chinese imports, Sunit Kapur, Epsilon’s CEO said at the Jan. 8 hearing.

Epsilon’s North Carolina plant stands to be the largest of its kind outside of China when it is completed, Kapur said. But it needs protection from Chinese imports that are now “materially retarding the establishment of” graphite production in the U.S.