Although I cannot rule it out, I doubt that wire shielding is the problem. Certainly, as suggested, you may want to getting a better cable. Even a USB cable would work.
You said that if you unhook up the 12 Volt supply to the motor controller, things work. If you do hook up the 12 Volt supply, things do not work. Is that even when no current is flowing to the motor controller? In other words, when the motor is not on?
The reason I ask about the pot input pins is that I think that is where the problem lies. I don't think your Arduino is reading the correct value from the steering pot. If you could confirm that by testing, that might help. You could hook your computer up to the first Arduino, have it read the pot input pins, and then have print out the values to the serial monitor.