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As the automotive industry braces for possible changes under a second Trump administration, there’s a lot of focus on how it might affect electric vehicles (EVs), tariffs, taxes, and trade relations globally. The proposed policies, like tax cuts, deregulation, tariffs, and changes in EV incentives, could significantly impact automotive markets, particularly in North America and Europe.
These policy changes will influence future sales of battery electric vehicles (BEVs) and alter global trade dynamics.
Tax Cuts and Vehicle Affordability: A Double-Edged Sword
A major policy in a potential second Trump administration is tax cuts. These include making the 2018 Tax Cuts and Jobs Act reductions permanent, eliminating taxes on tipped income, overtime, and social security benefits, and removing the cap on state/local tax deductions. Businesses could see the corporate rate drop from 21% to 15%.
While these tax cuts might boost economic growth, disposable income, and consumer spending in the short run, the long-term effects are uncertain. Increased demand, coupled with possible inflation, could lead to higher borrowing costs, affecting vehicle affordability.
In North America, where 86% of US consumers finance their new vehicles through leasing or loans, the automotive market is in a tricky situation. If the Federal Reserve raises interest rates to tackle inflation, car loan costs will increase, resulting in higher monthly payments. This might make consumers hesitant to buy new vehicles, including EVs, which usually have higher upfront costs compared to traditional cars with internal combustion engines.
The Role of Tariffs: Disruptions and Trade Barriers
Trade barriers, particularly tariffs, might become a key focus in a second Trump administration. Trump previously used tariffs as a negotiation tool, and they could be used again, possibly to balance the costs of tax cuts.
A proposed 10% tariff on imported vehicles from Japan, Korea, and Europe would affect 16% of US vehicle sales. More concerning is the possibility of a 25% tariff on imports from Canada and Mexico, crucial partners under the USMCA (United States-Mexico-Canada Agreement).
About one in four vehicles sold in the US come from Canada or Mexico and would be subject to these tariffs. This would disrupt the integrated North American automotive supply chain, which depends on free movement of parts and components between the US, Canada, and Mexico.
The US imports over $92 billion in automotive goods annually from these countries, so higher tariffs could lead to production delays, increased manufacturing costs, and, eventually, higher prices for consumers.
These trade disruptions could also affect the global market, complicating the trade environment, and impacting vehicle pricing and production in Europe and Asia, as automakers strive to manage production costs and consumer affordability.
Deregulation and Its Impact on Battery Electric Vehicle Sales
Another significant change under a second Trump administration might be the relaxation of environmental regulations, including fuel economy standards and BEV incentives. The previous administration focused on strict fuel economy standards and EV adoption as key to the industry’s future. However, with potential regulatory rollbacks, automakers might feel less pressure to electrify their fleets.
The National Highway Traffic Safety Administration (NHTSA) is considering easing fuel economy standards for model years 2027 and beyond, and the Environmental Protection Agency (EPA) may revise long-term carbon dioxide (CO2) standards.
This deregulation could slow the US market’s progress toward electric vehicles. S&P Global Mobility has revised its US BEV sales projections for 2030 downwards from over 6.5 million vehicles annually to just 5 million, meaning BEVs would make up only about 30% of the US market, far less than the previously expected 40%.
With less regulatory pressure, automakers might slow their transition to EVs, potentially stalling the momentum in the industry.
Beyond regulatory changes, losing consumer incentives for BEVs could significantly impact sales. One concern is the “lease loophole” in the Inflation Reduction Act, which allows consumers to lease EVs at more affordable rates, even if they don’t qualify for purchase tax credits.
If this loophole is closed or if overall incentives decrease, BEVs might become less accessible, especially if manufacturers lack incentives to lower prices or increase production.
The Broader Global Impact on EVs
Beyond North America, the global outlook for BEVs will be shaped by various geopolitical and economic factors. In Europe, where the automotive market heavily relies on export growth, the outlook is modest, with an expected year-over-year growth of just 1% by 2025.
This growth is limited by trade issues, including tariffs on Chinese vehicles, and rising costs of BEV subsidies. Some European nations have already suspended BEV incentives to cut government spending, which could slow electrification.
Europe’s Big Five markets (Germany, France, the U.K., Italy, and Spain) account for about 65% of the region’s vehicle volume, so any reduction in consumer incentives could significantly affect EV adoption.
Meanwhile, China’s vehicle market is increasingly shifting toward domestic electric vehicle manufacturers. Western automakers are struggling to compete as Chinese manufacturers focus on cost-effective new energy vehicles (NEVs).
By the end of 2024, Western automakers will account for less than 38% of total auto sales in China, a sharp drop from over 60% before the COVID pandemic. Although consumer incentives will expire in late 2024, the market is expected to bounce back in 2025, with a forecasted 4% growth.
The Road Ahead: Global Uncertainty
The global automotive industry is entering a period of significant uncertainty as it deals with the potential impacts of a second Trump administration. In North America, tax cuts, rising interest rates, and trade disruptions could make vehicles less affordable, despite signs of modest economic growth.
Potential rollbacks of EV incentives and environmental regulations might slow the adoption of electric vehicles, hindering efforts to transition to a more sustainable automotive future.
In Europe, the automotive sector faces slow growth and potential tariff issues, while China’s market is increasingly dominated by local manufacturers. Consequently, global BEV sales projections have been adjusted downward, and automakers may face tougher competition in both traditional and electric vehicle markets.
In this context, the next few years will be crucial for automakers to adapt to changing trade policies, regulatory shifts, and consumer behavior. The global shift toward electric vehicles is not guaranteed, and any delays or disruptions will have widespread effects.
Navigating these changes requires agility and foresight as the industry continues to tackle challenges and seize opportunities in a constantly evolving geopolitical landscape.
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