Auto Industry Adjusts Production Strategies Amid Tariff Concerns

Thursday 09 January 2025 - 07:37

LAS VEGAS, Jan 9 – Global automotive suppliers are reassessing their production strategies to move operations closer to or within the United States in response to potential tariff increases announced by President-elect Donald Trump, as discussed by industry leaders at CES in Las Vegas.

The auto sector has already faced eight years of U.S. protectionist policies, including real and threatened tariffs during Trump's previous term and additional trade barriers under President Joe Biden. Many of these measures targeted China, such as proposed restrictions on Chinese software and hardware in U.S. vehicles. Trump, however, has pledged to implement broader tariffs, including a 10% blanket tariff on global imports and a 60% tariff on Chinese goods. Additionally, he has committed to imposing a 25% tariff on imports from Canada and Mexico.

Such high tariffs would significantly disrupt the industry, making many low-cost imports financially unviable. "The math is simple," said Paul Thomas, North American president of Bosch, the world's largest auto parts supplier. "If tariffs are 10%, 20%, or 60%, we have to explore different scenarios and decide on feasible actions." Bosch is already exploring options like shifting production from locations like Malaysia to Mexico or Brazil, though major decisions are pending Trump's inauguration.

During his first term, Trump used tariff threats to pressure automakers into increasing U.S. production. For instance, when Toyota announced plans to manufacture the Corolla in Mexico, Trump pushed the company to invest in the U.S., resulting in a new joint plant with Mazda in Alabama.

Localized Production: A Strategic Priority

Major suppliers have been adapting their production strategies due to supply chain challenges from the pandemic and new U.S. policies, such as the Inflation Reduction Act (IRA). While the IRA incentivized U.S.-based investments, the incoming administration plans to revisit and potentially dismantle parts of it.

Nikolai Setzer, CEO of Continental, noted that his company has focused on regional production to better serve nearby customers, but discussions are ongoing with suppliers to find alternatives to avoid tariffs. Honda, for example, is evaluating whether to shift production from Mexico to Japan or other locations, depending on tariff levels.

The prospect of higher tariffs on Chinese goods has further motivated suppliers to reduce dependence on China. Panasonic Energy, which provides batteries to Tesla, is expediting plans to eliminate Chinese materials from its U.S. battery production. "Our top priority is ensuring the supply chain is not reliant on China," said Allan Swan, Panasonic Energy's North American president.