A recent report indicates that there's a dark and shadowy secret just waiting to wreck havoc on Tesla Motors: a federal probe into whether, as the conservative Washington Times puts it, "the automaker was using foreign instead of American parts in manufacturing their electric vehicles." Tesla has openly said it uses Panasonic battery cells, for example, so the need for a probe is not quite clear.

According to a PDF that the Times says comes from an Immigration and Customs Enforcement (ICE) investigation, ICE asked the Department of Energy for documents about the Advanced Technology Vehicles Manufacturing (ATVM) loan program on December 5, 2011. There are lots of "may" and "possibly" phrasings in the memo, and it reads like someone saw a mention on the DOE website about a "buy American" requirement and went fishing for information. The DOE responded on December 22 that "the $465m Tesla loan was not appropriated through the Recovery Act of 2009. The $465m Tesla loan was actually appropriated through Public Law 110-329 and does not have the buy American requirement," adding that "The DOE [Office of Inspector General] would not be investigating this matter any further." For some reason the Times concludes that the memo, "provides no information on how, or whether, the customs probe concluded."

A Seeking Alpha contributor notes that the ICE:

is still proactively investigating whether Tesla is using its foreign trade zone status to bypass the so-called "loan requirements." A foreign trade zone facilitates the creation of certain areas at or near customs port of entry where products can be imported without standard import duties and customs entry procedures. Tesla's application for a "subzone" within San Jose's foreign trade zone was approved in September. ICE is neither affirming nor denying an investigation. Also, Tesla has made no mention of this investigation in its SEC disclosures.

He add that he's not worried about a negative impact on TSLA stock or the company based on the investigation. For the record, Tesla's official statement is as follows:

We have not at any time been made aware of an investigation regarding this issue by ICE or any other governmental agency. It is customary for car manufacturers in the United States to use imported parts and we have openly indicated throughout the development of Model S that we purchase certain parts, like the cells used in our battery pack, from foreign suppliers.



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  • 40 Comments
      me
      • 2 Years Ago
      As soon as I saw the name "Washington Times" I stopped reading ...
      Rotation
      • 2 Years Ago
      Why does Tesla need a foreign trade zone?
        Letstakeawalk
        • 2 Years Ago
        @Rotation
        Tesla imports parts that would otherwise be subject to taxation. Foreign Trade Zones allow importers to bring in those parts and avoid paying the tax, because the parts are being made into something more valuable that will create more tax revenue later. BMW does it in SC. "Created by Congress in 1934, foreign-trade zones have grown in popularity over the past few years as businesses try to make products that are more competitive in domestic and overseas markets. South Carolina has foreign-trade zones across the state, including Dorchester County and the Columbia Metropolitan Airport. One encompasses BMW’s operations in the Upstate. A foreign trade zone is a duty-free, quota-free, secure area in a customs port of entry, actually considered to be outside the U.S. Customs and Border Protection territory. Taking advantage of the foreign-trade zone law was a key to BMW’s decision in 1992 to open a factory in the Upstate. Foreign and domestic goods can be brought into a zone without formal customs entry for assembly, manufacture, display, storage, destruction or other processing. Duty payments are not required until the merchandise leaves the zone for domestic consumption. If exported, no duty payments are made on the merchandise. Although the government collects less money in tariffs, foreign-trade zones attract companies, which leads to more jobs and other kinds of taxes." http://www.charlestonbusiness.com/news/41218-bmw-manufacturing-recognized-for-effective-use-of-foreign-trade-zones?rss=0
      GCP
      • 2 Years Ago
      I shall be contacting the Washington Times telephonically to verify the veracity of their details,.
      mylexicon
      • 2 Years Ago
      This blog is out of control. Manufacturing political unrest at every available opportunity to claim parts of our culture and business sector for various political factions. You're going to spoil this country for everyone. F*ck off with your labels and your politically-motivated reporting. If one side manages to get rid of the other, it will only underline that their only competency is winning elections regardless of the cultural rancor necessary. DC is basically on everyone's ****-list, and picking a side isn't going to get you off the hook. I
      Rotation
      • 2 Years Ago
      ratkmn: Taxes on profits are not duties. Taxes on other revenues are not duties. FICA is not duties. Income taxes from employees are not duties. What I was saying by no duties are being paid on the parts is that no duties are paid on the parts. And no duties are being paid on the parts. You want to make it a political issue, you go for it. I was talking about the facts.
      raktmn
      • 2 Years Ago
      If parts are imported duty-free, and built into a car that is exported, the US gov't still collects taxes on profits. They also collect other tax revenues from the company, like the company's share of FICA and other employment taxes. The gov't also collects income and FICA taxes from the employees that are hired to do the work using those foreign parts, even if the whole car is exported. In most cases, these additional taxes are more than the duties alone if the parts were just imported by a foreign company and just sold in the US. Nobody is getting off not paying any taxes, even if the parts are re-exported in a whole car, if that is what you are trying to imply when you say "no duties are paid at all."
      Mark Schaffer
      • 2 Years Ago
      So, Sebastian Blanco is using a Mooney Times article as if it were credible. Can we say "judgement failure"?
        Ford Future
        • 2 Years Ago
        @Mark Schaffer
        Scraping the bottom of the barrel for sensational news feeds. Shocking.
      Letstakeawalk
      • 2 Years Ago
      An AutoWeek writer *is* currently being held hostage by the press Model S, which refuses to let go of its charging plug due to a bad part.
      • 2 Years Ago
      This is the Washington Times. Conservative claptrap is their MO.
        Chris M
        • 2 Years Ago
        Founded by the cult leader Sun Myung Moon, the Washington Times has a strong far-right bias, and not surprisingly, a strong anti-Obama bias as well. Not surprising that they'd try to fabricate a scandal where none exists. Like Fox News, the Washington Times has no journalistic integrity.
          carney373
          • 2 Years Ago
          @Chris M
          I'm not going to argue with you about Moon, whose ties to it, however hands-off, continues to be an albatross on the Time's credibility, nor about the Times' overall conservative stance and take on events. But the Times has broken many stories, scooped other outlets, and won quite a few awards. You can't dismiss its journalism that easily. Because it's the #2 paper in DC, it has to try harder, like Avis. It's even gotten praise from the Post.
      Grendal
      • 2 Years Ago
      Ha-ha. Rotation said dooty. Sorry. :)
      EZEE
      • 2 Years Ago
      Okay.... For all of the criticism of Sebastian, and the fact that (gasp) the news story came from a non approved source (ie, not liberal/socialist), clicking in the source shed some light. The Washington times article has the governmental probe investigation in a PDF format. The story is legit - now this does not mean that tesla is guilty, or that the requirements of the loans were not overly difficult to comply with, or that Elon knew of every requirement, but to simply criticize Sebastian (which is normally fine, and enjoyable), or the fact that the article did not come from the huffington post or msnbc, does not make Sebastian an awful guy for simply reporting on an investigation. The story is also being covered by just bout everyone (oddly, I saw no mention on Fox), so his choice of sources was simply a choice.
        Grendal
        • 2 Years Ago
        @EZEE
        Every other news article is just quoting the original Washington Post article just like Sebastian. The investigation happened over a year ago and the ironically named ICE was told by the DOE that Tesla's money was not part of the Recovery Act. It is both a good sign, that the ICE is looking out for our interests, and a bad sign, that they are investigating a company that has nothing to do with what they are tasked with protecting us from. Overall the article makes the ICE look like a bunch of incompetent boobs. Doesn't this government agency have a list of companies that took Recovery money to search amongst? This story is a good example of how, in modern news, that bad news can create a panic over absolutely nothing.
          Grendal
          • 2 Years Ago
          @Grendal
          Thanks, LTAW, for the more detailed correction. I'm very happy to hear they were doing their job properly.
          Letstakeawalk
          • 2 Years Ago
          @Grendal
          "...that the ICE is looking out for our interests, and a bad sign, that they are investigating a company that has nothing to do with what they are tasked with protecting us from." ICE was investigating *exactly* the sort of thing they are tasked with. "ICE's primary mission is to promote homeland security and public safety through the criminal and civil enforcement of federal laws governing border control, customs, trade, and immigration." Tesla applied for a Foreign Trade Zone. ICE, being involved in foreign trade regulation, contacted the DoE to get clarification about Tesla's loan, in order to ensure that Tesla was operating within the boundaries of the law. The DoE clarified the agreement that Tesla had to abide by, and the case was settled. A couple of telephone calls, asking simple questions. Hardly a big deal, and certainly within the scope of the ICE's duties.
          Grendal
          • 2 Years Ago
          @Grendal
          Correction: Washington Times
      Rotation
      • 2 Years Ago
      Okay, so if the parts end up in the US they pay the taxes when the finished product leaves the zone and if the parts are reexported, no duties are paid at all. Makes some sense.
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