Here’s the thing about the American auto industry: It is, more than anything, the North American auto industry. Over the past few decades, the factories, product planning, parts networks and supply chains are have become deeply intertwined across the United States, Mexico and Canada. President Donald Trump doesn’t believe the latter two countries have treated the U.S. “fairly,” and as he starts a trade war to rectify that situation, the auto industry is one of the most powerful and damaging tools in his arsenal.
The only problem is, it’s hard to say right now who stands to “win” in such a trade war, or what “winning” even means.
Today on Critical Materials, our morning roundup of industry and technology news, we take a close look at the Trump tariffs’ unique impact on cars and try to game out what it means for consumers. Also on our docket: How European and Asian automakers get ready to be targeted next, and a key Trump ally in Congress has big plans for the electric vehicle tax credit. Let’s dig in.
30%: A ‘Screeching Halt’
Photo by: InsideEVs
The Trump Trade War has arrived.
Over the weekend, Trump signed executive orders implementing a 25% tariff on almost all goods imported into the U.S. from Canada and Mexico. There are a lot of items that could see significant price increases as a result, but since you likely don’t come to InsideEVs for news about avocados, we’ll stick to what we know about the car industry and its electrified transition.
Update 5:30 p.m..: After publication, a deal was struck between the U.S. and Mexico that will delay that country’s tariff implementation by at least a month. On Monday afternoon, Canada followed suit. Our original story follows below.
And compared to the avocado business, the trouble with the car industry is how complex and interconnected it all is. It’s not just that cars of all kinds—Chevrolets, Mazdas, Nissans, BMWs, Volkswagens and so on—might be built in Canada or Mexico. It’s also that the thousands of parts inside them are made across those various borders too. As Axios noted today, a single component in a vehicle can cross the U.S. border between six and eight times before final assembly. No automaker can escape being affected by these extra costs; even while Tesla, for example, ranks among the most American-made vehicles, about 15% of a Model Y’s parts come from Mexico alone.
In other words, there’s no universe where this decision won’t result in higher car prices for the consumer—as much as $3,000 more. That feels like the best-case scenario. Automotive News warns that the cost hits to automakers and their parts manufacturers could result in entire plant or shift shutdowns:
Tariffs aimed at Canada’s auto sector will also “score direct hits” on auto producing states from Michigan to Alabama and Georgia to California, said Flavio Volpe, CEO of the Automotive Parts Manufacturers’ Association.
“The dominoes will fall as the quick debates happen on who is going to absorb the 25%,” he said. The tariff rate is “15% higher than anybody’s profit margin,” and neither automakers nor suppliers will be prepared to take those losses, resulting in idled plants, Volpe added.
Within a week, automakers could resort to stopping their lines, leading work at Tier 1, 2 and 3 suppliers to quickly dry up, said David Adams, CEO of Global Automakers of Canada, which represents import brands in the country. “It’s not something I think that manufacturers will do lightly, but they may be in a situation where the options are relatively limited.”
[…] “You cannot make a car without all of the parts,” he said. “The parts are not available at Walmart. They’re highly engineered. Suppliers are capital-intensive, high-tech businesses, and nothing that Donald Trump says can change the fact that he will bring his own industry to a screeching halt.”
Basically, nobody can afford this—not the automakers, not the parts companies and not the consumers, either. Even with fewer parts involved in their construction, EVs are hardly immune to this situation, either. Their parts come from all over the U.S., Canada and Mexico, and even the Inflation Reduction Act’s EV tax credits were meant to prioritize cars with “final assembly” in North America. About 100,000 direct automotive jobs across this continent could be impacted within days.
As we reported earlier, Mexico and Canada aren’t taking this lying down; Canada is also targeting a 25% tariff on U.S.-made cars, including EVs. And at least one Canadian politician wants to target Tesla, specifically, for CEO Elon Musk’s support of Trump and unofficial yet powerful role in his administration.
And Canada’s officials aren’t mincing words about the seriousness of the situation. Here’s Automotive News Canada:
Earlier on Feb. 1, Ontario Premier Doug Ford said he fully supported the federal plan to “hit back hard.” “There’s no sugarcoating this. The coming weeks and months will be some of the toughest we’ve ever faced,” he told reporters in Brampton, Ont.
“The impact of these tariffs will be felt almost immediately. Companies’ orders are going to slow down. Factories will have to reduce shifts. Workers may lose their jobs.”
Trump says that he wants Canada and Mexico to do more to halt illegal immigration and what he claims is the flow of the dangerous opioid fentanyl into the U.S., and that America “should make [its] own cars.” But even if you’re an advocate for American manufacturing jobs, moving all of that car and part production entirely to the U.S. would take years—if it could be done at all.
Consumers, the auto industry and the development of the nascent North American EV sector all stand to take a big hit here. Now the question is: Who backs off first?
60%: Asia, Europe Get Ready For What’s Next
Photo by: Audi
Shares of automakers and parts suppliers from Japan, South Korea and Europe all took a hit Monday as global investors prepare for tariff blowback and potentially weakened new car demand in the U.S. Nissan and Honda all make a lot of U.S.-bound cars in Mexico, and while it primarily serves Latin America, Kia has a large factory presence there too. So do several of South Korea’s EV battery firms and battery materials makers.
Reuters reports that Stellantis and Volkswagen are also especially exposed by the tariffs on Mexican-made goods. In fact, VW, along with General Motors, may be among the hardest hit here:
German car lobby VDA said on Saturday that the tariffs are a significant setback for rule-based global trade and could have repercussions on jobs in Germany and Europe.
Volkswagen is the most exposed to tariffs among German carmakers. Analysts at investment bank Stifel have said that 65% of the cars that Volkswagen sells in the United States would no longer be competitive if duties were added to Mexican imports.
Moreover, CNBC reports that the European Union and the United Kingdom could be next:
Asked on Sunday about the prospect of tariffs on goods from the U.K. and European Union (EU), Trump told the BBC that both were acting “out of line,” but that the EU was behaving worse, and that tariffs could be imposed on the bloc “pretty soon.”
“They don’t take our cars, they don’t take our farm products, they take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products,” he commented as he arrived in Maryland. He said there was no timeline for imposing tariffs, but that they would come “pretty soon.”
After that, all eyes turn to the Asian markets, whose automakers are heavily dependent on exports. We’re all in for a time.
90%: An Ohio Auto Dealer Turned Senator Targets The EV Tax Credits
Photo by: Honda
The tariff chaos is one thing. But whenever it ends—and whenever it ends—there’s the matter of how the Trump administration will address the EV transition in America and beyond.
We know Trump has said he wants to get rid of the EV tax credits, though doing so would take an act of Congress to repeal some or all of the IRA. And Bloomberg reports that one key figure in that effort could be newly elected Ohio Sen. Bernie Moreno, who made a fortune as a car dealer and is due to target EV incentive policies soon:
An Ohio Republican who built an empire of auto dealerships, Moreno has his sights on unwinding much of former President Joe Biden’s climate agenda: He wants to loosen regulation in the industry that made him his fortune, while also pressuring carmakers to bring more jobs and investment to the US.
Moreno plans to introduce the Automotive Freedom Act, which would eliminate the leasing loophole for consumer electric-vehicle tax credits while restricting battery production subsidies. He also favors relaxing fuel-economy rules and revoking California’s authority to set its own clean air regulations, and said his bill would seek to harmonize fuel-economy and tailpipe pollution limits, creating “one national standard” that extends 10 years.
[…] Moreno insists he’s not against EVs — he says he’s for consumer choice and letting the market, not the government, decide what automakers should sell.
Others in the auto industry worry that policies that hamper EV adoption stateside will only help China extend its lead over incumbent automakers, who are struggling to gain enough scale to make EVs profitably.
But as that story points out, Moreno’s plan could run afoul of other purple- and red-state elected officials who have significant EV and battery factory investments in their districts. Earlier today, we reported on the huge build-out Honda’s undertaking in Moreno’s own state.
And to his credit, Moreno is sitting down with auto executives, the United Auto Workers union and other stakeholders. This part is interesting, emphasis mine:
Courting Democrats could prove even trickier. Moreno also must tread carefully given the potential economic implications for his state. That may explain why he wants to spare the IRA production tax credits known as 45X, but make it harder for companies to qualify by extending the application of restrictive content rules that block materials imported from China.
He also indicated he’s open to a gradual phaseout of the EV tax credit — a nod to dealers’ and automakers’ concerns that an abrupt change could saddle them with EVs that become more expensive overnight.
Moreno is “somebody who has been there, invested capital, taken risk and understands those competitive dynamics intuitively,” said John Bozzella, president of the Alliance for Automotive Innovation, which lobbies for most automakers.
I’m not sure anybody expected EV incentives, in their current form, to last forever. If they are to be phased out, a plan to do so is far more preferable than a cold-turkey ending to the program.
100%: What’s Your Prediction For The Trade War?
Photo by: Chevrolet
2024 Chevrolet Equinox EV
Your guess is as good as mine, at this point. But everyone except Trump seems to want it to end very quickly. How would you game this out? Let us know in the comments.
Contact the author: patrick.george@insideevs.com
