President Donald Trump’s proposed automotive strategy involves two significant changes that could disrupt the North American vehicle industry. These changes, primarily focused on the potential rollback of emissions standards and tariffs on imported vehicles, threaten to reduce U.S. vehicle production. While the industry has been relatively stable, manufacturers and suppliers are now facing potential turmoil, especially with the ongoing transition to electric vehicles (EVs). These changes could have wide-reaching consequences, including delays in EV production, employment disruptions, and increased vehicle prices.
Over the past four years, manufacturers and suppliers in the automotive industry have operated within a predictable regulatory and trade environment, despite some challenges. Federal incentives aimed at encouraging the adoption of electric vehicles and boosting their production helped ease the industry’s transition. This led to a projected increase in North American light vehicle production, with an expected total of nearly 17 million units by 2027, including around 3 million battery-electric vehicles (BEVs). The industry was also preparing for the introduction of over 50 new vehicle models, signaling substantial progress despite some program delays.
North American automotive manufacturers have spent the last two years organizing their supply chains to capitalize on incentives from the Inflation Reduction Act. The goal was to boost BEV production and increase battery manufacturing capacity, with plans to produce 4.7 million BEV units by 2027. This surge in production capacity would result in a significant increase in BEV availability, particularly in the United States. However, the excess capacity will not be fully utilized until infrastructure like public charging stations and reduced battery costs meet consumer demand, which is expected to take several years.
Manufacturing Employment and Growth
Manufacturing employment in the U.S. automotive sector has already begun to rise. In 2024, U.S. vehicle production reached 10.8 million units, increasing employment to levels higher than those seen in 2018. As production grows, employment is expected to continue to rise in assembly plants and among suppliers. However, the proposed policy changes threaten this growth, with manufacturers potentially scaling back hiring or reducing shifts due to uncertainty in demand and regulatory shifts.
The Trump administration’s proposed policies, including the rollback of planned emissions standard increases and the removal of incentives for electric vehicle production, could cause significant disruption in the automotive industry. The elimination of federal consumer incentives for BEV purchases would place the burden on manufacturers, which could reduce demand and lead to lower production capacity utilization. This could also result in delays in BEV programs and pushback capacity increases by at least two years.
Impact of Eliminating Manufacturing Incentives
Removing manufacturing assembly and battery production incentives would exacerbate the situation. Major investments in BEV capacity and battery development have already been approved, and eliminating these incentives would lead to job losses in key manufacturing hubs like Michigan, Kentucky, and Tennessee. Manufacturers might reduce shifts, and suppliers would face decreased demand for components. This situation would benefit foreign manufacturers, particularly Chinese companies, who would continue to expand their presence in the global market.
Trump’s idea of using tariffs to bring vehicle production back to the U.S. is viewed as a long-term strategy that could increase prices on both domestic and imported vehicles. Historical examples show that tariff-induced changes take time, and implementing them now could lead to a reduction in U.S. vehicle production as early as the second half of 2025. While tariffs might provide short-term protection for domestic producers, they would ultimately raise vehicle prices and reduce production capacity in the U.S., making the strategy problematic for the industry.
A more balanced approach could involve pushing CO2 emissions standards out by five years and reducing consumer incentives for BEVs and hybrids. This would provide manufacturers more time to adjust to regulatory requirements while ensuring that the transition to electric vehicles remains viable. Additionally, implementing a federal road tax for BEVs, eliminating incentives for imported BEVs, and focusing on the U.S. tool and die industry could strengthen domestic manufacturing. Moreover, targeted tariffs on Chinese imports could address national security concerns without disrupting the broader automotive market. This approach would promote a smoother transition to a battery-electric future while fostering long-term growth in the U.S. automotive sector.