OEMs have been making strategic decisions to reshape their supply chains to mitigate against the effects of US president Donald Trump’s tariffs and trade shifts.
Since he was sworn into office in January, Trump has
threatened and implemented tariffs that dramatically change the automotive
logistics landscape, altering trade flows and manufacturing bases in the
automotive supply chain, as carmakers look to lessen the blow of the steep
duties on imports of vehicles and parts.
Through shifting shipment strategy, inventory management,
investment and production planning and cost management, carmakers are
attempting to tackle the tariff charges by being lean and resilient.
Automotive OEMs shift production and investments to
mitigate tariffs
In the lead up to the implementation of the tariffs at the
start of the year, many carmakers including Ford warned of the “huge impact” on
the automotive industry if tariffs were prolonged, particularly those on Canada
and Mexico. When Trump reaffirmed his plans for tariffs, OEMs began strategising.
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Toyota
Shortly after the inauguration, Toyota announced that it
will make its own EV batteries at its plant in North Carolina and begin local
supply in April, showing its commitment to EV battery production in the US. The
$14bn plant in Liberty, Toyota Battery Manufacturing North Carolina (TBMNC), is
the OEM’s first in-house battery plant outside of Japan. The carmaker said the
first shipment of battery packs would go to Toyota Kentucky, adding through a
spokesperson that the company supports trade policies that allow it to build
where it sells, and buy where it builds. The move could help Toyota to avoid
tariffs incurred from importing batteries into the US for its plants in
America.
Hyundai
Rendering of Hyundai Steel Company plant in LouisianaLouisiana Economic Development
Hyundai Motor took a similar approach in March, committing
$21bn to US vehicle manufacturing, supply chain and logistics until 2028, to “ensure
robust supply chains”.
Hyundai said it would invest $9bn by 2028 and boost US
production capacity to 1.2m vehicles, and said the total investment would also
include a $5.8bn Hyundai Steel plant in Louisiana, which could supply steel to
plants in Alabama and Georgia, helping avoid steep tariffs of up to 50% on
steel imports to the country.
The South-Korean OEM also shifted production of some of its
Tucson SUV models from its Nuevo Leon plant in Mexico to its Alabama plant in
the US.
GM
Once 25% tariffs on vehicle imports, and 25% on car part
imports, were implemented, GM announced it would commit to invest $4bn to US
vehicle production. In May, the OEM announced that the investment would expand
vehicle production in Michigan, Kansas, and Tennessee. It followed its previous
investment of $888m for its Tonawanda Propulsion plant in Buffalo, New York.
GM’s CEO Mary Barra said: “We believe the future of
transportation will be driven by American innovation and manufacturing
expertise.” She added that the investment demonstrates the OEM’s “ongoing
commitment to build vehicles in the US and to support American jobs”.
The carmaker’s North American footprint is extensive,
spanning 50 US manufacturing plants and parts sites across 19 states.
GM didn’t disclose whether the shift would directly impact
existing volumes in Mexico and Canada, but the investment signalled a strong lean
towards US localisation in its supply chain.
Honda
In May, Honda announced that it would shift some of its
production of its CR-V model from Canada to the US, to minimise the impact of
the tariffs. While it would keep building the models in Canada, it would up the
volume at its plants in Indiana and Ohio.
Toyota
Also in May, Toyota announced its plans to move some
production of its GR Corolla model to the UK, taking advantage of the UK and US
trade deal which reduces tariffs on vehicle imports to the US from 25% to 10%.
The OEM’s Burnaston plant in the UK already produces a Corolla
model, allowing Toyota to scale up production easily for the GR.
Rivian
Rivian's production of its R2 model will be boosted by the OEM's $120m investment into a supplier park in Illinois, US Rivian
In the same month, Rivian announced a $120m investment into
a supplier park in Illinois, US, to help localise its supply chain.
The 1.2 m sq.ft park would boost EV supplier localisation in
the area, and according to the state’s governor, would “strengthen the EV manufacturing
supply chain” in Illinois and give it the “competitive edge to thrive in the
clean energy economy”.
Rivian’s founder and CEO RJ Scaringe said the park will be “a
key enabler to increasing production” at its plant in Normal, Illinois for its
upcoming R2 model in 2026.
Inventory shifts, export pauses and stockpiling
Other OEMs decided to strategically move inventories ahead
of the implementation of tariffs, or pause exports in a ‘wait and see’
approach.
Mercedes-Benz
In March, Reuters
reported that Mercedes was stockpiling inventory in the US while it evaluated
the best strategies to deal with the tariffs.
The OEM planned to build stock at wholesale and dealership
level in anticipation of the added duties.
The carmaker, which has no manufacturing presence in the US
and most of its plants based in the UK, said it had sufficient stock in the US
to enable a pause in shipments, which ended up lasting one month. In a statement,
the OEM said the pause would allow it to develop its mid-to-longer-term plans.
Closely following the actions taken by JLR, VW Group decided
to suspend shipments from Mexico to the US in early April. The German carmaker
also held all vehicles delivered after the tariff implementation deadline at US
ports of entry.
Its Audi division also said it would halt vehicle exports to
the US from Europe and Mexico.
In a statement to Automotive Logistics, VW Group said
it was assessing the potential impact of the duties on its supply chains and
production networks, and highlighted its recent investment of $14bn in the US
to support jobs and growth.
Mitsubishi
In April, Mitsubishi temporarily paused vehicle exports to
US dealerships, holding vehicles at ports while awaiting clarity on the duties.
The OEM said at the time that it had sufficient inventory at dealerships to
meet consumer demand while halting further imports to the US.
Nissan
Nissan suspended production of three models for the Canadian
market at two US plants in July while trade talks continue between Canada and
the US, according to Nikkei Asia.
The carmaker is also thought to be exploring a collaboration
with Honda, looking at joint production and shared platforms to potentially build
Honda trucks at Nissan’s Mississippi plant. While still unconfirmed, the OEMs
have a long history of strategic partnerships, and a move like this could help
both carmakers mitigate potentially steep tariffs on Japan.
Volvo Cars
In July, Volvo Cars stated that some of its models, including
the ES90, “can not be sold profitably in the US” due to tariffs. While scaling
back on some of its models to mitigate the financial hit, the carmaker decided
to increase the utilisation of its US plant in Charleston.
Volvo Cars' Ridgeville plant in Charleston, South CarolinaVolvo Cars
In its second quarter results, Håken Samuelsson, president
and CEO of Volvo Cars, said: “To increase the utilisation of our Charleston
plant and to reduce the effects of import tariffs, we will introduce local production
of the best-selling XC60 SUV in the USA.”
Samuelsson added that the OEM is starting to make its EX30
model in its Ghent factory in Belgium to reduce the impact of the US tariffs.
OEMs take diplomatic route to deal with tariffs
Some OEMs entered into talks with the US government to try
to make trade agreements around tariffs.
Ford, Stellantis, and GM
Following the implementation of tariffs on goods imported
from Canada and Mexico, North America’s ‘Big Three’ OEMs spoke with the
president to ask for exemptions for carmakers.
The talks were partially successful, with Trump granting a
one-month exemption for carmakers that comply with the terms of the USMCA. The
move was welcomed by the American Automotive Policy Council, a trade group
representing Ford, Stellantis and GM. Its president Matt Blunt said: “We look
forward to working with president Trump and his administration on our shared
goals of increasing US automotive production and expanding exports to markets
all around the world.”
Neither OEM complies with USMCA rules. As a result, an Audi
spokesperson said it was considering the extent to which it would have to pass
on some of the cost to its customers. Similarly, a BMW spokesperson said that
tariffs “hinder free trade, slow down innovation, and set a negative spiral in
motion,” adding that “they are detrimental to customers, making products more
expensive and less innovative”.
Cost cutting solutions to tariffs
Hyundai
In April, Hyundai Motor announced that it was launching a
tariff task force to minimise the financial impacts of the tariffs, as well as develop
plans to increase local sourcing of car parts in the US.
The OEM is vulnerable to tariffs as about one-third of its
global sales are generated from the US market, according to Korea Investment &
Securities.
Honda
In May, at the same time as it announced it would increase
volumes at its US plants, Honda announced that it would postpone its plans to
build new EV factories in Ontario, Canada.
In 2024, the carmaker had said it would invest almost $11bn
into its North American EV supply chain, including a new EV battery plant in
Alliston, Ontario and another factory that was yet to be announced.
Honda said the Canadian investment would be postponed for
two years due to a slowdown in EV demand. In the meantime, it said it will be “keeping
a close eye on further market demands”.
We will update this story as more information becomes available...
