Challenges for the EV Sector
Tariffs could exacerbate existing challenges for the automotive industry, particularly in the EV market. Rising labor costs, worker shortages, and a slowdown in EV growth have already strained suppliers.
According to Leonard LaRocca, U.S. automotive industry leader at KPMG, “Tariffs will potentially exacerbate supplier worries as EV demand is likely to fall further this year.” Automakers pursuing EV subsidies under the IRA may face uncertainty as the incoming Trump administration aims to dismantle parts of the law.
Honda’s Executive Vice President, Noriya Kaihara, acknowledged that higher tariffs might force the company to reconsider its production locations. Honda’s plant in Mexico, with an annual capacity of 200,000 vehicles, exports 80% of its output to the U.S. market. Kaihara suggested that production could shift to Japan or other locations depending on tariff levels.
China in the Crosshairs
China remains a focal point in the trade battle. The Biden administration has already restricted Chinese software and hardware in U.S. vehicles. Trump’s proposed tariffs would further isolate China’s role in the automotive supply chain.
Panasonic and other suppliers have intensified efforts to source raw materials from North America. For instance, Panasonic has secured deals with Canadian natural graphite producer Nouveau Monde Graphite and synthetic graphite anode materials provider Novonix.
If enacted, Trump’s tariffs could ripple across the industry and affect consumers. High import taxes are likely to increase production costs, making it challenging for automakers to maintain competitive pricing.
During Trump’s first term, automakers faced similar pressures. In 2017, Toyota planned to produce the Corolla sedan in Mexico for U.S. consumers but faced public criticism from Trump. This led to a broader trend of automakers boosting U.S. production to avoid punitive measures.
Conclusion: A Precarious Road Ahead
As the automotive industry faces the possibility of unprecedented tariffs, companies are reevaluating their production strategies to remain viable. While localization offers a buffer against trade disruptions, it may not fully offset the financial and logistical challenges posed by protectionist policies.
The stakes are high for global suppliers and automakers, as the decisions made in the coming months could shape the industry’s future. For now, the sector waits with bated breath for clarity on trade policies under the Trump administration.