This week’s announcement by the White House that a 25% tariff on vehicles built outside the US will commence on April 2nd is set to have a seismic effect on the global automotive industry. The tariffs on vehicles built outside the US and on certain auto parts, such as engines and transmissions, are aimed at bolstering domestic manufacturing and encouraging automakers to move production to the US. However, with many US car makers sourcing their components from around the world, they could face higher costs and lower sales.
Undoubtedly these tariffs present new challenges for electric-vehicle (EV) adoption in the United States, but could they also presents automakers with an opportunity to lean into software-driven efficiencies to facilitate continued EV deployment?
Keeping pace with evolving tariffs
Before the recent US import tariffs, the EV industry was set to reach an estimated production capacity of 5.8 million new EVs annually by 2027. This forecast was due, in part, to increased tax incentives from the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. These were meant to ramp up US EV and battery production, bring jobs to the US, reduce the country’s reliance on foreign supply chains and accelerate consumer adoption of software-defined vehicles (SDVs). With the new US presidential administration, these incentives have the potential to be significantly reduced.
The reductions of tax incentives coupled with new impending tariffs on goods and parts produced outside of the US seemingly threaten the acceleration of EV adoption. However, automakers deserve more credit for their ability to persevere in the face of disruption. Beyond improving production efficiency, a key solution lies in the adoption of a software-driven production strategy to stay ahead of incoming tariffs.
Solutions for accelerating SDV rollout amid uncertainty
Currently, many EVs are priced with tax incentives in mind in order to keep pricing competitive with gas-powered models. Without those credits, manufacturers may need to adjust sticker prices, introduce new financing structures or find other ways to maintain and grow sales momentum.
To stay ahead of incoming tariffs, automakers could simply raise prices to offset the impact. Instead, however, many are taking proactive steps to minimise costs without passing them on to consumers. A key strategy emerging is the prioritisation of software-driven solutions over hardware, allowing for greater flexibility and efficiency. Automakers are also accelerating production efforts, shortening lead times, adopting lean manufacturing strategies and working with partners to shift production to the US to mitigate tariff impacts while maintaining affordability.
What does this look like in the real world?
In an industry with traditionally long lead-times, Mazda, for example, is adopting a “Lean Asset Strategy” to help reduce investment and lead time for their first line of in-house electric vehicles due in 2027. By utilising existing manufacturing facilities and partnerships, the automaker aims to maintain its electrification investment at approximately 1.5 trillion yen ($10.02 billion) through 2030, avoiding a potential 30% increase to 2 trillion yen.
We’ve also seen Volkswagen move up the launch of their ID. EVERY1 electric vehicle by a full year. VW brand CFO David Powels said on the brand’s 2024 earnings call on March 13th that the vehicle will now launch in 2027, not 2028 as originally planned. This ramp up is, in part, due to the company’s collaboration with US-based EV-maker Rivian and further exemplifies a renewed effort in the race to deploy SDVs across the US.
As automakers rush to localise production and streamline costs, reliance on software-driven efficiencies will begin to pick up. By reducing reliance on hardware and leveraging over-the-air (OTA) updates, automakers can enhance vehicle functionality without expensive physical upgrades. This shift is especially crucial as regulatory complexities and tariff barriers create supply chain challenges. In this climate, advanced connectivity solutions enable automakers to seamlessly deploy SDVs across diverse markets, ensuring compliance with ever-changing regional regulations and minimising operational disruptions.
In a continually changing automotive landscape, the ability to remain agile by leaning into software and connectivity capabilities will define industry leaders. Only time will tell how trade policy changes will impact SDV deployment in the United States, certainly the industry is preparing as best it can. By providing a scalable, global solution, we are empowering automakers to maintain compliance and adaptability, while also enabling them to future-proof vehicles against shifting market demands, whatever they may be.
