The US auto industry, still recovering from a pandemic-era surge, faces renewed uncertainty with the incoming Trump administration. Major automakers like General Motors (GM) and Ford (F) scaled back their electric vehicle (EV) growth strategies in 2024 due to softening demand projections. Former President Trump’s stance on EVs, while evolving, adds further complexity to the sector’s outlook.
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Trump’s EV Position: A Mixed Signal for the Industry
Despite his close relationship with Tesla CEO Elon Musk, Trump has expressed reservations about a rapid transition to electric vehicles. In a 2024 CNBC interview, he voiced support for “all alternatives,” citing concerns about EV range, cost, and reliance on Chinese manufacturing. He also questioned the US power grid’s capacity to handle widespread EV adoption.
However, following an endorsement from Musk, Trump seemingly reversed course, stating he had “no choice” but to back EVs. This shift notwithstanding, reports suggest Trump intends to weaken emissions standards and potentially eliminate the $7,500 federal EV tax credit.
Impact of Policy Changes on Automakers
While Tesla might weather the removal of the tax credit, legacy automakers like Ford and GM rely heavily on it to maintain price competitiveness. UC Berkeley economics professor Joseph Shapiro emphasized the significance of the $7,500 incentive, stating its loss would be “not trivial” for a nascent market like EVs.
Furthermore, automakers risk falling behind global competitors if they curtail EV development to align with potential policy changes. Sam Fiorani of AutoForecasting Solutions warns that neglecting the EV transition could hinder technological advancements in motors and batteries.
Supply Chain Challenges and Tariff Threats Exacerbate Uncertainty
Beyond EV policy, the industry grapples with lingering supply chain disruptions from the pandemic boom. High interest rates and inflated vehicle prices further strain dealers and manufacturers alike. Stellantis, parent company of Jeep, Dodge, and Ram, has been actively reducing inventory levels amidst these challenges, even experiencing a CEO resignation in December.
Trump’s history of imposing tariffs on major trading partners, including Canada and Mexico, raises concerns about further disruptions. Heidi Crebo-Rediker of the Council on Foreign Relations anticipates immediate action on tariffs upon Trump’s inauguration.
These tariff threats could significantly impact both US and foreign automakers with production facilities in Mexico and China. GM and Ford, for instance, manufacture several models in Mexico, potentially exposing them to tariff-related costs.
S&P Global estimates that tariffs on vehicles produced in Europe, Mexico, and Canada could slash automakers’ annual core profits by up to 17%.
A Glimmer of Hope?
Despite the prevailing uncertainty, some industry leaders see potential for positive engagement with the Trump administration. Ford executive chairman Bill Ford reported a recent conversation with Trump, suggesting a more informed and potentially helpful approach from the former president. Ford characterized Trump as wanting to be “helpful” and possessing “superior” knowledge of the industry compared to his first term.
While optimism exists, the US auto sector undeniably faces a period of significant uncertainty under the new Trump administration. The confluence of evolving EV policies, supply chain complexities, and potential trade disruptions will undoubtedly shape the industry’s trajectory in the coming years.
