This post was originally published on Autocar
Donald Trump returned to the White House on 20 January
Heavy tariffs on Mexico and the cancellation of EV grants are among the new US president’s big plans
The American automotive landscape could be fundamentally reshaped under new US president Donald Trump, as he promises to suppress the growth of EVs and green energy in favour of fossil fuels and hike taxes on imported vehicles and parts.
Both shifts will affect European car makers, too. Those exporting from the EU and the UK are bracing themselves for higher barriers to entry into a key market, potentially reducing their sales and income.
Meanwhile, the promise to junk incentives for EVs and their assembly and supply chains will, if comprehensive, prompt a fundamental rethink to production planning and investment in the US.
Following Trump’s inauguration on 20 January, the EU became the target of the his seemingly bottomless ire towards countries selling into US. “The European Union is very, very bad to us, so they are going to be in for tariffs,” he told reporters, without elaborating.
Tariffs have long been a key plank of Trump’s plan to boost US manufacturing and protect jobs, even as the move threatens to increase inflation and overheat the economy.
Trump didn’t include tariffs in his initial blizzard of executive orders but said that a planned 25% tariff on Mexican and Canadian imports would be imposed from 1 February.
Mexican tariffs in particular would hit car makers hard, with around a fifth of vehicles sold in the US coming from across the southern border.
Many firms use Mexico to build cheaper cars for export, including Honda, Kia, Mazda, Nissan, Stellantis, Toyota, Volkswagen and the US’s own Ford and General Motors. Audi builds the Q5 in Mexico for global sales, BMW the 3 Series and models.
Mexico and Canada are also key manufacturing locations for automotive suppliers, supplying around 16% of the parts used in the production of the circa 10 million vehicles built in the US every year, according to the bank Bernstein.
It’s not yet known what the tariff on vehicles from the EU will be, but the consultancy S&P Global Mobility is working on the assumption of an additional 10% on top of the existing 2.5%.
Vans, pick-up trucks and lorries already attract a 25% import duty – called the ‘chicken tax’ in reference to a previous trade spat with Europe.
The UK’s flourishing premium car sector – including Bentley, JLR and Rolls-Royce – would be the worst hit, accounting for the majority of the 73,571 cars the UK exported in 2023.
The US was the UK’s second largest export market after the EU, according to figures from the Society of Motor Manufacturers and Traders.
It’s worth noting that Trump has dialled back significantly from some of the wilder campaign trial promises; at one point, he threatened a 200% tariff on Mexican imports.
He is no doubt hoping that the higher prices inflicted on consumers by tariffs will be offset by his plan to wipe away legislation designed to reduce vehicle carbon emissions and promote EVs.
Trump promised to “end the Green New Deal” of his predecessor Joe Biden and roll back the planned 50% zero-emission target for 2030.
This would “save our auto industry”, he promised in his inauguration speech. “In other words, you’ll be able to buy the car of your choice.”
Trump also ordered a freeze on unspent funds from Biden’s Inflation Reduction Act (IRA), which was designed to boost US investment in green energy.
“This was the most impactful action,” Bernstein auto analyst Daniel Roeska wrote in a note.
Since Biden passed the IRA in 2022, the US government has injected hundreds of billions of dollars into the economy, mostly in the form of tax credits, prompting calls from Renault CEO Luca de Meo for the EU to do the same.
The second largest recipient of that cash was battery manufacturing, at around $77bn (£62.5bn), according to figures from the Clean Investment Monitor.
The tax credit granted $35 per kWh for domestically produced battery cells, dramatically lowering the cost of battery manufacturing in the face of seemingly unstoppable Chinese competition.
The US government claimed manufacturers like Ford had announced 201,900 EV-related jobs in the US on the back of that investment, with manufacturing facilities on track to be capable of producing around 5.8m new EVs annually by 2027.
Trump also signalled the end of federal purchase tax credits for electrified vehicles, which are currently worth up to $7500 (£6100).
S&P expects EV demand in the US to be impacted, potentially meaning that last year’s record EV sales of 1.3m (according to figures from automotive services form Cox Automotive) could remain a record for many years to come.
Plug-in hybrid sales will also be hit, S&P reckons. Interest in hybrids had been increasing, due to their fuel-saving potential, but that will reduce demand for Trump’s beloved “liquid gold”.
Trump’s strong-man messaging will quickly meet messy economic reality, believe analysts.
“Much of the detail is still outstanding and uncertain,” Stephanie Brinley, associate director of S&P’s AutoIntelligence division, warned car makers.
Around 84% of the jobs generated by IRA funding are in Republican states, according to S&P, meaning that Trump will get pushback from otherwise loyal politicians keen to preserve local jobs.
“Their support for reducing funding cannot be assumed,” Brinley said.
S&P expects much of the manufacturing credits will remain.
The closeness of Trump to Tesla CEO Elon Musk is another wildcard in all this, although Musk could well be plotting a pivot away from volume electric car production to concentrate on robotaxis while semi-plausibly retaining Tesla’s $1 trillion-plus share-price valuation.
A US that turns its back on EVs isn’t going to fare well in a world moving to electrification. Ford, GM and Japan’s Honda, Nissan and Toyota are mostly concentrating their US production on the US market, but BMW and Mercedes-Benz use their US hub as a basis for exports of mainly SUVs back to Europe, which will increasingly require EV alternatives.
As German chancellor Olaf Scholz told the World Economic Forum in Davos in response to Trump’s tariff plan: “Isolation costs prosperity.”