Trump Effect: Slow Adoption of Electrics and a More Restrictive USMCA

By Carlos Arredondo/Horsepower

The outcome of the U.S. election will complicate the outlook for the automotive industry in North America in large part because it will slow the adoption of electric vehicles, as environmental regulations will be delayed and fiscal stimuli will be eliminated.

Added to this will be a new set of restrictive policies that will work against Mexico's ability to attract investment, although the precise focus of these measures will not be known until well into 2025. However, it is unlikely that BYD will abandon its intention to establish an assembly plant in the country.

This was announced by experts from S&P Global Mobility during the seminar Election in the US: Estimating the Impact on the Automotive Ecosystem, given by Guido Vildozo, associate director of Automotive Consulting, and Stephanie Brinley, associate director of Automotive Intelligence.

The current landscape

One of the main factors framing the current situation, Vildozo said, is that the industry is moving “sideways,” as it goes through a transition phase in which not only is electrification being adopted slowly, but such momentum is dampening sales growth as consumers are hesitant about the options available to them to renew their mode of private transportation.

According to Brinley, car sales in the U.S. market will close 2024 with a growth of around 1.8%. The analyst attributed this modest variation to the increase in interest rates, which negatively impacts the monthly payment that the average consumer makes when acquiring a new vehicle.

Add to this the fact that electrified vehicles are considerably more expensive than gasoline versions, and the result is reflected in the poor performance mentioned above.

However, Brinley said, these obstacles will be mitigated in the near future with a reduction in interest rates, which although already happening, will take some time to be reflected in consumer sentiment, “but it will happen.”

There is also a strengthening in wages and therefore purchasing power, which is being driven by strong employment figures, he added.

One positive aspect within the industry is that automakers plan to invest $500 billion in electric vehicle programs between now and 2030, of which 25% or more will be earmarked for North America.

This investment will add production capacity to North America, which not only translates into assembly lines, but a whole new ecosystem of suppliers that will serve these programs.

But according to Vildozo, this complicates the panorama because it is not a situation of “if we produce them, they will sell”, since consumers are not adopting these new proposals “as fast as we would like” and for that reason these programs are being delayed in their execution.

The biggest effect of the postponement of these plans is that it severely hurts suppliers that are already investing to go through such a transition, especially on the financial side, the analyst said.

Hybrid solution

According to data from S&P Global Mobility, in 2020, sales of internal combustion vehicles represented just over 90% of the total volume, while today this fraction is already below 80% and in the not too distant future it will be less than 25%. However, it should be noted that this technology will not be replaced by electric propulsion, but by hybrid propulsion.

In this regard, Brinley pointed out that the slow transition to electrified vehicles has not affected all OEMs equally, noting that brands such as Honda and Toyota have been able to take advantage of this trend by developing hybrid versions whose production costs are not very far from pure internal combustion versions.

“They have been very good at packaging their hybrid solutions, to the extent that you don't perceive much change from the way a pure internal combustion car operates, there's not much difference in price, but they do get all the benefits of greater fuel efficiency. That is very attractive to consumers,” the analyst said.

What's next

According to experts, the scenario for the North American automotive market after the presidential election will be determined by three main factors: regulatory impact, cost of production and consumer taste.

In the first aspect, they stated, it should be taken into account that with Donald Trump's victory many of the regulations that would come into force between 2028 and 2032 regarding carbon emissions will be “frozen”, which will reduce the speed with which internal combustion vehicles are phased out.

In this scenario, S&P Global Mobility analysts estimate that the percentage of electric vehicle sales in the United States will be 29% of the total by 2030, also due in large part to the fact that tax incentives to purchase such products will be eliminated.

With the end of the stimulus, they noted, the adoption rate of electric vehicles will depend on the ability of automakers to launch products at a price that consumers are willing to pay.

The analysts stressed that rather than a specific figure, what will encourage the public to purchase zero-emission units will be the narrowing of the gap between the price of an internal combustion vehicle and its electric counterpart. This will inevitably mean, they warned, sacrificing profit margins.

The elephant in the room

Of course, one of the biggest concerns with the outcome of the election will be the implementation of tariffs on auto imports into the U.S. market, as well as the revision of the USMCA.

In this regard, analysts warned that it is still too early to foresee changes, as even with the executive authority granted by law to the incoming president, establishing substantive policies requires review by Congress, which is still under Republican Party control and must hold consultation periods to get feedback from the automotive sector. This will mean that the precise focus of the policies to be promoted will not be known until the second quarter of 2025.

An important aspect to take into account in legislative efforts, they say, is the possibility that representatives from regions with a strong automotive industry presence will push to maintain an environment that stimulates investment regardless of their party affiliation.

However, they said, a strengthening of tariffs on both vehicles and components from China and a more restrictive review of the USMCA is to be expected.

Regarding the USMCA review, the pressure is likely to focus on Mexico, especially on labor issues, but above all on the growing concern about the investments that Chinese automotive companies, both OEMs and suppliers, are making in the country. “While the specific changes that will be pushed for are not yet clear, the issue will be preponderant in the discussion,” they warned.

“Mexico already has suppliers from China operating in the country, as well as automaker JAC assembling CKDs in Mexico and BYD reviewing sites to invest in a plant. BYD has said its final decision will come sometime after the election, but it seems unlikely to abandon the proposal,” they said.

However, they believe that pressure from the United States and Canada for Mexico to raise wages for autoworkers will ultimately weaken the country's advantage in attracting investment.

Something that is also clear, they concluded, is that the results of the election will generate enough uncertainty for automotive companies to delay decisions regarding the planning of their products in both the short and long term, although they estimate that investment in the development of new technologies will continue to be a priority in order to bring them to the market before the consumer demands them.