The Trump Effect on the EV Industry in North America

The global automotive industry is undergoing a transformation as electric vehicles (EVs) gain traction as a viable alternative to traditional internal combustion engine (ICE) vehicles. Governments worldwide have implemented policies and incentives to accelerate the transition toward sustainable mobility, with North America emerging as a key player in EV production and innovation. Mexico, as an integral part of the region’s automotive supply chain, has positioned itself as a manufacturing hub for EVs and related components, benefiting from foreign investments and trade agreements such as the United States-Mexico-Canada Agreement (USMCA).

However, with the return of Donald Trump to the White House and his administration’s decision to pause the implementation of an EV mandate and withdraw the United States from the Paris Agreement, the momentum behind the EV industry has been disrupted. The EV mandate, which provided tax incentives and subsidies to encourage EV adoption, battery manufacturing, and charging network deployment, played a crucial role in shaping the market. The withdrawal from the Paris Agreement further signals a shift away from aggressive climate commitments, reducing regulatory pressure on automakers to transition toward cleaner energy sources.

As a result, Mexico faces significant challenges that could impact its economy, industrial growth, and role within the global EV market. Understanding the effects of these policy reversals and developing strategies to mitigate their consequences will be essential for Mexico to maintain its competitiveness in the evolving automotive sector.

Without government support, US demand for EVs is expected to decline, impacting the entire North American supply chain, including Mexico. Automakers may slow down or scale back their EV production plans, leading to reduced orders for components and batteries from Mexican factories.

Mexico has positioned itself as a major player in EV manufacturing, with companies like Tesla, Ford, General Motors, and BMW investing heavily in production facilities. However, with US demand weakening, these companies may reassess their commitments, delaying or downsizing future projects. Factories in Mexico that rely on exporting EVs to the United States could face reduced production levels, potential job losses, and financial uncertainty.

Moreover, Trump's history of protectionist trade policies raises concerns about new tariffs or trade barriers that could further complicate supply chains. If tariffs are imposed on Mexican EV exports, production costs could rise, making it less attractive for automakers to continue expanding their EV operations in Mexico.

The shift in US policy will not only affect vehicle manufacturers but also the extensive network of Tier 1 and Tier 2 suppliers that provide essential components for EV production. Tier 1 suppliers, which manufacture key systems such as batteries, powertrains, and electronic components, may experience reduced demand as automakers scale back their EV plans. This could lead to plant closures, layoffs, and a reallocation of resources toward ICE vehicle components. In addition they need to revise their supply chain to reduce as much as possible Chinese components in the equipment they manufacture.

Tier 2 suppliers, which provide raw materials and smaller components, may also struggle with supply chain disruptions. The slowdown in EV production could result in decreased orders, affecting businesses that have invested in new technologies and infrastructure to support the EV transition. Additionally, suppliers that depend on international markets could face logistical and financial hurdles if trade tensions escalate between the United States and Mexico.

Despite these challenges, Mexico can take several proactive steps to mitigate risks and continue strengthening its position in EV production:

1. Boost Domestic EV Adoption: Mexico should develop incentives and infrastructure to promote internal EV demand, reducing reliance on the US market. Tax benefits, expanded charging networks, and fleet electrification programs can help sustain the industry.

2. Diversify Export Markets: With reduced demand from the United States, Mexico must focus on increasing EV exports to Europe, Latin America, and Asia. Strengthening trade relations with markets committed to electrification can open new business opportunities.

3. Invest in Battery Production and Critical Minerals: Mexico has lithium reserves and other essential minerals for EV batteries. Developing a strong domestic battery industry can attract investment and reduce reliance on external supply chains. This will take some time, but it plays a key role in the supply chain.

4. Strengthen Regional Partnerships: Collaborating with Canada, which remains committed to EV incentives and climate policies, could help maintain trade stability and investment in the region’s EV sector.

5. Support Tier 1 and Tier 2 Suppliers: Mexico should encourage local suppliers to diversify their product offerings to include components for both EVs and hybrid vehicles, reducing dependency on volatile US policies. Government incentives and funding for innovation in sustainable manufacturing could also help suppliers stay competitive.

6. Encourage Private Sector Leadership: Large automakers and technology firms have long-term electrification strategies. By fostering private investment and partnerships, Mexico can sustain its role in EV manufacturing despite shifts in US policy.

It might sound pessimistic in the end, but I see a bright future for the EV industry in the region. The market penetration is still low compared to other countries, generating hope for the short term. By focusing on domestic market growth, diversifying trade partners, supporting suppliers, and investing in battery production, the country can navigate these disruptions and continue positioning itself as a key player in the global EV landscape. Adaptability and proactive policy measures will be crucial in ensuring Mexico’s success in the evolving mobility sector.

Ultimately, while US policy changes introduce uncertainty, Mexico has the opportunity to strengthen its industrial strategy, embrace innovation, and build resilience within its automotive supply chain. Through coordinated efforts between the government, private sector, and trade partners, Mexico can solidify its role as a leader in EV production and remain competitive in the global market.