Tesla has been buying aluminum from Russian supplier Rusal since 2020

Tesla and SpaceX CEO Elon Musk received praise from around the world for helping Ukraine as Russia began its brutal invasion. His aerospace company activated its satellite internet service, Starlink, for use in Ukraine at the request of the country’s digital transformation minister, Mykhailo Fedorov. His electric car business has also been involved in assembling Starlink equipment and Powerwalls, energy storage systems capable of powering such equipment, for shipment to Ukraine.

But Tesla also has supply chain ties to Russia. Elon Musk’s electric-vehicle maker bought 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 previously sanctioned by the US Treasury, which cited Russia’s “malicious activities” at the time, but those sanctions were lifted under former President Donald Trump in 2019. Tesla only started buying aluminum to the company until the end of 2020.

A Tesla Model Y is seen in a production hall at the Tesla Gigafactory during the open house. In Grünheide, east of Berlin, the first vehicles should roll off the production line from the end of 2021.

Patrick Pleul | wedding ring | Getty Images

Tesla is buying Rusal aluminum to cast parts at its new vehicle assembly plant outside Berlin, according to invoices, internal correspondence and several current and former employees who spoke to CNBC on condition of anonymity. , citing fear of reprisals.

The aluminum can be used, among other things, for molding and making bodies for the Tesla Model Y, and has been used in production on new manufacturing lines at the Tesla plant in Brandenburg, Germany. This plant is not yet fully operational, but recently received conditional approval to begin commercial production soon. There is no evidence that Rusal aluminum was 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 car research firm. supply chain and risk management based in Arlington, Virginia.

But Moscow’s aggression against Ukraine has challenged relationships with suppliers and forced companies to question whether they can legally and morally continue to pay millions to companies that enrich the Russian Federation and to Putin’s confidants. who run these companies. Inflation can play into these decisions – Tesla CEO Elon Musk acknowledged on Sunday night that the company is facing significant inflationary pressure in the cost of raw materials.

CNBC has not learned specifically how much Tesla paid Rusal for the metals at this time. CNBC asked Tesla if the company was taking steps to sever business ties with Rusal or any other Russian company, but Tesla did not respond.

A history of sanctions

Rusal, the world’s second-largest aluminum supplier, was once among the biggest companies the US has ever put on its sanctions list. Previous restrictions 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 of directors. administration to meet the US Treasury’s demands for independent directors.

Deripaska sued the U.S. Treasury Department and its Office of Foreign Assets Control in an attempt to reverse sanctions that personally affected his wealth and reputation. A judge dismissed the case, but Deripaska has an appeal pending.

Since the start of the Russian siege of Ukraine in 2022, Rusal has not been sanctioned by the United States, and Deripaska’s position with Putin is unknown. The billionaire 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.”

Russian tycoon Oleg Deripaska reacts outside the offices of the Gorkovsky Automobile Plant (GAZ) in Nizhny Novgorod, Russia, April 16, 2019.

Maxim Chemetov | Reuters

Rusal’s majority shareholder, EN+ Group International, is reportedly considering transferring the company’s international assets to a new entity, which would have no Russian ownership, management or control.

Rusal declined to comment.

Rusal is not Tesla’s only or main aluminum supplier. Tesla has worked for years with metals giant Hydro as a larger supplier of aluminum, for example. According to Hydro’s website, the company’s metallic aluminum production facilities are based throughout Europe, Canada, Australia, Brazil and Qatar. “Two-thirds of our primary aluminum production is based on renewable energy,” boasts the company.

But Musk’s automaker has spent millions on Rusal since late 2020, according to invoices and other documents seen by CNBC. A German subsidiary of Tesla has historically paid the Swiss subsidiary of Rusal through an Austrian bank.

Tesla’s aluminum purchases from Rusal began after a change of guard in the company’s management ranks and after Elon Musk announced in November 2019 that Tesla would build a factory in Germany, according to records and a report. internal correspondence, and current and former employees familiar with the matter.

Former employee with direct knowledge says former Tesla CFO Deepak Ahuja was ‘allergic’ to doing business in or with Russia due to the rise and impacts of Russian organized crime in the country and risks of sanctions against any supplier or partner in Russia following Moscow’s 2014 invasion and annexation of Crimea.

After Ahuja announced his resignation in January 2019, with Zachary Kirkhorn taking over as CFO in March of 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 intern records seen by CNBC.

While Tesla decided to suspend the opening of factories, sales or service centers in Russia indefinitely, the company knew that some of its vehicles had been imported into Russia independently. As such, the company has created and maintains certain vehicle maintenance manuals and other traffic safety documents relating to the use of its cars in Russia.

In December 2020, Tesla decided to start sourcing aluminum from Rusal for casting at its new plant under construction in Germany until 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 Russian-based companies supply directly. these automakers. Four of the country’s largest automakers have direct, or Tier 1, relationships with 13 different Russian suppliers.

Interos CEO and Founder Jennifer Bisceglie said, “Russia’s invasion of Ukraine is literally Russia’s invasion of the global supply chain. In response, we are literally cutting off parts of our supply chain developed by sanctions and war. do two things – one is to stock up, to buy as much as they can as quickly as they can. Beyond that, they are looking for alternative sources, either from another location or from another metal or material that they can use as a substitute.

Kristine Pirnia, who leads the export controls and sanctions practice at law firm Sandler, Travis & Rosenberg, also spoke to CNBC about the disruption to the auto industry from the nascent war on Ukraine in general.

Pirnia noted that while it remains legal and ethically justifiable for automakers to work with Russian suppliers, targeted banking sanctions and the complexity of legal compliance could make it nearly impossible to continue doing so.

“The United States has been very thoughtful and strategic with the sanctions it has issued to date.” Pirnia said: “There is no general rule. This means that you have to perform several stages of analysis on each transaction relating to Russia.”

As automakers struggle to understand what their businesses need to change to stay compliant with the new sanctions as they roll out, Pirnia explained, the industry is mostly concerned about the inability to complete transactions. deals with these Russian companies, due to the 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 par with Cuba or North Korea and could make Russian metals prohibitively expensive in the long run for American companies like Tesla.

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