Tesla's Texas Megapack factory wins foreign-trade zone status, but China tariffs still apply

Tesla’s Megapack factory in Brookshire, Texas, is now officially a foreign-trade zone, a US customs program that lets manufacturers defer duties on imported parts. The FTZ Board’s approval, published in the Federal Register on Monday, runs for 14 months.

It’s easy to read this as Tesla getting a pass on tariffs for the Chinese LFP cells inside its Megapacks. Tesla’s own application says otherwise: parts hit by Section 301, 232, or 122 tariffs still pay them.

What Tesla asked for

Tesla filed the request on May 20 for Subzone 84AM, part of FTZ 84 in the Houston area. That’s the factory where Tesla started Megapack 3 production in August, with a planned capacity of 50 GWh per year.

The application lists roughly 80 imported components Tesla wants to bring in under zone procedures, from coolant pumps and transformers to busbars, wiring harnesses, circuit boards and battery cells. Duty rates on those parts go up to 6.5%, while finished Megapacks and Bento inverters range from duty-free to 3.4%.

That gap is the usual reason companies set up an FTZ. A manufacturer in a zone can normally elect to pay the finished product’s lower rate instead of the rate on each imported part.

The tariff catch

But the application spells out the limit. Components subject to duties under Section 122 of the Trade Act, Section 232 of the Trade Expansion Act, or Section 301 “require subject merchandise to be admitted to FTZs in privileged foreign status,” according to the notice.

Privileged foreign status locks in a part’s own classification and tariff treatment when it enters the zone. So a Chinese LFP cell that ends up in a Megapack sold in the US still pays the Section 301 tariff on Chinese non-EV lithium-ion batteries, which jumped from 7.5% to 25% on January 1, 2026. Tesla just pays it later, when the finished Megapack leaves the zone.

Here’s what Tesla actually gets out of it:

• Duties are deferred until a Megapack ships out of the zone, which helps cash flow while the factory ramps up
• No US duty on Megapacks exported directly from the zone
• The lower finished-product rate on parts that aren’t caught by China, steel, or other special tariffs
• No duty on scrap, and fewer customs filings

Useful. Not an exemption.

Same deal everyone else got

The approval came with the same wording the FTZ Board has used all year. Production was “authorized on a limited basis,” and “further subject to a fourteen-month time period.”

Tesla got an identical decision for Megapack and inverter production at Fremont, Livermore and Lathrop in California this summer, with a one-year limit instead. Eastman Chemical, battery pack maker Rose Batteries, and chipmaker Qorvo all received similar time-limited, “limited basis” approvals in 2026.

The 14-month clock puts the expiry around the end of 2027. That’s roughly when LG Energy Solution is due to start supplying Tesla with LFP cells from Michigan under a $4.3 billion contract for Megapack 3, with mass production expected in the second half of 2027.

Tesla’s China cell problem

Tesla hasn’t hidden the issue. When tariffs escalated in April 2025, CFO Vaibhav Taneja said the impact on energy storage would be “outsized since we source lithium iron phosphate (LFP) battery cells from China.” We wrote at the time that Tesla’s only growing business was kneecapped by Trump’s tariffs.

Tesla has since brought up its own LFP cell factory in Nevada, but Taneja said it would only cover a fraction of Tesla’s installed capacity. And Brookshire alone is designed for 50 GWh a year, on top of the 40 GWh Lathrop factory in California.

Tesla’s Megapacks are bringing big batteries to the grid, but you can get the same benefits at home by pairing solar with storage. With electricity rates up almost 10% last year and expected to keep climbing, going solar is one of the best ways to protect yourself against rising costs. And with lease and PPA options, you can do it with zero upfront cost and start saving immediately. If you want to find the best deal, check out EnergySage. It’s a free service with hundreds of pre-vetted installers competing for your business, so you save 20 to 30% compared to going it alone. No sales calls until you pick an installer. Get your free quotes here.