Tesla and SpaceX CEO Elon Musk won global praise for assisting Ukraine as Russia began its brutal invasion. His aerospace company switched on its satellite internet service, Starlink, for use in Ukraine at the request of the country’s digital transformation minister, Mykhailo Fedorov. His electric car company pitched in too, assembling Starlink equipment and Powerwalls, energy storage systems that can power that equipment, to ship to Ukraine.
But Tesla also has supply chain ties to Russia. Elon Musk’s electric vehicle maker has purchased millions of euros worth of aluminum from Rusal, a company founded by sanctioned Russian oligarch Oleg Deripaska, according to internal documents obtained by CNBC.
Rusal was once sanctioned by the US Treasury, which cited Russia’s “malign activities” at the time, but those sanctions were lifted under former President Donald Trump in 2019. Tesla only began buying aluminum from the company in late 2020.
Tesla purchases Rusal aluminum for casting parts at its new vehicle assembly plant outside of Berlin, according to invoices, internal correspondence, and several current and former employees who spoke with CNBC on condition of anonymity, citing fear of retaliation.
The aluminum can be used, among other things, for casting and to make body shells for the Tesla Model Y, and has been used in production on new manufacturing lines at the Tesla plant in Brandenburg, Germany. That plant is not fully up and running yet, but recently gained conditional approval to start commercial production soon. There’s no indication that Rusal aluminum has been used in US production.
Tesla’s willingness to work with at least one Russian supplier is not unusual — ten of the world’s largest automakers buy from at least one tier-1 supplier in Russia, according to Interos, a global supply chain and risk management research firm based in Arlington, Virginia.
But Moscow’s aggression against Ukraine has thrown supplier relationships into question, and forced businesses to ask whether they can legally and morally keep paying millions to corporations that enrich the Russian federation and the Putin confidants who lead those businesses. Inflation may play into these decisions — Tesla CEO Elon Musk acknowledged on Sunday evening that the company is facing significant inflationary pressure in the cost of raw materials.
CNBC has not learned precisely how much Tesla has paid Rusal for metals to-date. CNBC asked Tesla if the company is taking steps to sever business relationships with Rusal or any other Russian companies, but Tesla did not reply.
A history of sanctions
Rusal, the second-largest aluminum supplier in the world, was once among the largest companies that the US ever put on its sanctions list. Earlier curbs were lifted in January 2019 after the company’s billionaire founder, Oleg Deripaska, agreed to relinquish control and Rusal’s parent company, EN+ Group International, appointed new directors to its board to satiate U.S. Treasury demands for independent directors.
Deripaska went on to sue the US Treasury Department and its Office of Foreign Assets Control to attempt to reverse the sanctions that personally affected his wealth and reputation. A judge dismissed the case, however Deripaska has an appeal pending.
Since Russia’s 2022 siege on Ukraine began, Rusal has not been sanctioned again by the US, and Deripaska’s standing with Putin is unknown. The billionaire has called for peace, and Reuters reported that he said on March 7, “The whole world will be different after these events and Russia will be different.”
Rusal’s controlling shareholder, EN+ Group International, is reportedly considering a transfer of the company’s international assets to a new entity, which would have no Russian owners, management, or control.
Rusal declined to comment.
Rusal is not Tesla’s sole or primary aluminum supplier. Tesla has worked for years with metals giant Hydro as a more significant supplier of aluminum, for example. According to Hydro’s website, the company’s aluminum metal production facilities are based throughout Europe, Canada, Australia, Brazil and Qatar. “Two-thirds of our primary aluminum production is based on renewable energy,” the company boasts.
But Musk’s car company has spent millions of Euros with Rusal since the end of 2020, according to invoices and other documents viewed by CNBC. A German subsidiary of Tesla has historically paid the Swiss subsidiary of Rusal through an Austrian bank.
Tesla’s purchases of aluminum from Rusal began after a changing of the guard in the company’s executive ranks and after Elon Musk announced in November 2019 that Tesla would build a factory in Germany, according to records and internal correspondence, and current and former employees familiar with the matter.
One former employee with direct knowledge said Tesla’s previous CFO, Deepak Ahuja, was “allergic” to doing business in or with Russia due to the the rise and impacts of Russian organized crime in the country, and risks of sanctions on any suppliers or partners in Russia following Moscow’s invasion and annexation of Crimea in 2014.
After Ahuja announced his resignation in January 2019, with Zachary Kirkhorn taking over as CFO in March that year, Tesla worked with a consulting firm called Global Counsel Limited to analyze the business environment, market potential and risks of working in Russia, according to this former employee and internal records viewed by CNBC.
While Tesla decided to hold off on opening factories, sales, or service centers in Russia indefinitely, the company was aware that some of its vehicles had been imported to Russia independently. As such, the company has created and maintains some vehicle service manuals and other road safety documents pertaining to use of its cars in Russia.
By December 2020, Tesla decided to start sourcing some aluminum from Rusal for casting at its new plant being built in Germany and was doing so through February 2022.
‘An invasion of the global supply chain by Russia’
According to Interos, which monitors global supply chains using machine learning software, ten of the world’s largest automakers all have at least one direct supplier in Russia, and 27 companies based in Russia directly supply these car companies. Four of the largest domestic automakers have direct, or tier 1, relationships with 13 different Russian suppliers.
Interos CEO and founder Jennifer Bisceglie said, “The invasion of Ukraine by Russia is literally an invasion of the global supply chain by Russia. In response, we are literally cutting parts of our developed supply chain off through sanctions and war. Companies are responding by doing two things– one is stockpiling, buying as much as they can as rapidly as they can. Beyond that, they are looking for alternative sources whether that’s from another place or from another metal or material that they can use as a substitute.”
Kristine Pirnia, who leads the export controls and sanctions practice at the law firm Sandler, Travis & Rosenberg, also spoke with CNBC about autos industry disruption from the nascent war on Ukraine generally.
Pirnia noted that even if it remains legal, and ethically justifiable, for automakers to work with Russian suppliers, banking focused sanctions and the complexity of legal compliance could make it nearly impossible to keep doing so.
“The US has been very thoughtful and strategic in respect to sanctions It has issued to-date.” Pirnia said, “There’s not a blanket rule. That means you have to do multiple steps of analysis on every transaction relating to Russia.”
While automakers are working to understand what their businesses must change to remain compliant with new sanctions as they roll out, Pirnia explained, the industry is most concerned that it may be impossible to conduct financial transactions with these Russian businesses, due to the strong focus on banking in sanctions by Western governments.
Last week on Friday, President Joe Biden urged Congress to join the European Union in suspending normal trade relations with Russia, which would put Russia on the same tier as Cuba or North Korea and could make Russian metals prohibitively expensive long-term for US companies like Tesla.