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As the automotive industry prepares for the potential
uncertainties of a second Trump administration, the global impact
on electric vehicles (EVs), tariffs, taxes, and trade relations is
profound. The president-elect's proposed policies, including tax
cuts, deregulation, tariffs, and changes to EV incentives, will
have ripple effects on global automotive markets, especially in
North America and Europe.
How these policies unfold will shape the future of battery
electric vehicle (BEV) sales and global trade dynamics.
Tax Cuts and Vehicle Affordability: A Double-Edged Sword
One of the cornerstone policies of a second Trump administration
is tax cuts, including making the reductions from the Tax Cuts and
Jobs Act of 2018 permanent, eliminating taxes on tipped income,
overtime and social security benefits and removing the cap on
state/local tax deductions. For businesses, he has pledged to
reduce corporate rate from 21% currently to 15%.
While this could stimulate economic growth, disposable income,
and consumer spending in the short term, the long-term effects are
less certain. Higher demand, combined with potential inflationary
pressure, could lead to higher borrowing costs, which would dampen
vehicle affordability.
In North America, where 86% of US consumers rely on financing
(lease or loan) for new vehicles, the automotive market faces a
delicate balancing act. If interest rates rise as the Federal
Reserve takes action to combat inflation, the cost of car loans
would increase, leading to higher monthly payments. This scenario
may make consumers think twice before purchasing new vehicles,
including EVs, which typically carry higher upfront costs compared
to traditional internal combustion engine vehicles.
The Role of Tariffs: Disruptions and Trade Barriers
Trade barriers, particularly tariffs, are another potential
critical aspect of the second Trump administration. Throughout his
first term, Trump used tariffs as a negotiating tool in trade
talks, and these measures could escalate again, especially to
offset the costs of tax cuts.
A proposed 10% tariff on imported vehicles from regions like
Japan, Korea, and Europe would directly impact 16% of US vehicle
sales. However, the more concerning aspect would be the potential
for a 25% tariff on imports from Canada and Mexico, key trading
partners under the USMCA (United States-Mexico-Canada
Agreement).
Approximately one out of every four vehicles
sold in the US comes directly from Canada or Mexico; those vehicles
will be exposed to tariffs. Additionally, such tariffs would
disrupt a highly integrated North American automotive supply chain,
which relies on parts and components flowing freely between the US,
Canada, and Mexico.
With the US importing over $92 billion in
automotive goods annually from these countries, a tariff increase
would lead to production delays, higher manufacturing costs, and,
ultimately, increased prices for consumers.
These disruptions would also extend to the broader global
market. For example, tariffs could complicate the global trade
environment, influencing vehicle pricing and production volumes in
Europe and Asia, especially as automakers increasingly look to
manage production costs and consumer affordability.
Deregulation and Its Impact on Battery Electric Vehicle
Sales
A potentially more significant shift under a second Trump
administration is the rollback of environmental regulations,
including fuel economy standards and incentives for BEVs. Under the
previous administration, aggressive fuel economy standards and the
push for EV adoption were central to the automotive industry's
future. However, with the expectation of relaxed regulations,
automakers may face less pressure to electrify their fleets.
The National Highway Traffic Safety Administration (NHTSA) is
already considering loosening fuel economy standards for model
years 2027 and beyond, and the Environmental Protection Agency
(EPA) is likely to revise long-term carbon dioxide (CO2)
standards.
This deregulation could undermine the US market's previous
trajectory toward electric vehicles. S&P Global Mobility
projections for US BEV sales by 2030 have been revised downward
from over 6.5 million vehicles annually to just 5 million. This
would mean BEVs would account for only about 30% of the US market,
far below the previously anticipated 40%.
With less regulatory pressure, automakers may slow their EV
transitions, potentially stalling the momentum that had built up in
the industry.
Beyond regulatory changes, the loss of consumer incentives for
BEVs could significantly hinder BEV sales. One particular area of
concern is the “lease loophole” in the Inflation Reduction Act,
which allows consumers to lease electric vehicles at more
affordable rates, even if they don't qualify for purchase tax
credits.
If this loophole is targeted for elimination, or if overall
incentives are reduced, it could make BEVs even less accessible,
especially as manufacturers may not have the same incentive to
drive down prices or ramp up production.
The Broader Global Impact on EVs
In addition to the impact in North America, the global outlook
for BEVs will be influenced by several geopolitical and economic
factors. In Europe, where the automotive market is highly dependent
on export growth, the outlook is modest, with expected
year-over-year growth of just 1% in 2025.
This growth is being constrained by trade issues, including
Chinese vehicle tariffs, and the rising costs of subsidies for
BEVs. Several European nations have already suspended BEV
incentives to reduce government expenditures, which could slow the
shift toward electrification.
With Europe's Big Five markets (Germany, France, the U.K.,
Italy, and Spain) accounting for roughly 65% of vehicle volume in
the region, any dip in consumer incentives could have far-reaching
effects on EV adoption.
Meanwhile, China's vehicle market is seeing an increasing shift
towards domestic electric vehicle manufacturers. Western OEMs are
struggling to maintain competitiveness as China-owned manufacturers
focus on cost-effective new energy vehicles (NEVs).
Across the overall automotive market in China, by the end of
2024, Western automakers will account for less than 38% of total
sales. This is a stark decline from over 60% prior to the COVID
pandemic. The expiration of consumer incentives in late 2024 is
likely to impact demand in China, but the market is expected to
rebound in 2025, with a modest 4% growth forecast.
The Road Ahead: Global Uncertainty
The global automotive industry is facing a period of significant
uncertainty as it navigates the implications of a second Trump
administration. In North America, tax cuts, rising interest rates,
and trade disruptions through tariffs will create an environment
where vehicle affordability may be compromised, even as the economy
shows signs of modest growth.
Meanwhile, the possible rollback of EV incentives and
environmental regulations could slow the adoption of electric
vehicles, undermining efforts to shift toward a more sustainable
automotive future.
Across the Atlantic, Europe's automotive sector faces slow
growth and potential tariff issues, while China's market is
increasingly dominated by local manufacturers. As a result, global
BEV sales projections have been adjusted downward, and automakers
may face stiffer competition in both traditional and electric
vehicle segments.
In this environment, the next few years will be critical for
automakers to adapt to shifting trade policies, regulatory changes,
and consumer behaviors. The automotive industry's global transition
to electric vehicles is far from guaranteed, and any delays or
disruptions will have ripple effects across markets worldwide.
Navigating these changes requires agility and foresight, as the
industry continues to grapple with both challenges and
opportunities in an ever-changing geopolitical landscape.
Need help planning for an uncertain future? Access
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