Impact of New Tariffs on Electric and Plug-in Hybrid Vehicles in the US
The recent implementation of tariffs in the United States has added a layer of complexity to the electric vehicle (EV) and plug-in hybrid (PHEV) market. With 25 percent tariffs affecting imported vehicles and auto parts, the cost dynamics for both manufacturers and consumers are shifting significantly. Many popular EV and PHEV models, assembled outside the U.S., face these new fees, including American-branded cars manufactured in Mexico or Canada. Conversely, certain foreign brands producing in U.S. factories escape these import taxes. Additional factors like reciprocal tariffs and the potential impact on battery components further complicate the situation. This article explores the implications of these tariffs on the industry, including possible strategies by automakers to address rising costs.
As the United States embarks on its second week of imposing new tariffs, the ripple effects across the global automotive industry are becoming evident. A significant number of popular electrified vehicles are assembled internationally, making them susceptible to the newly imposed 25 percent tariff. Even some vehicles carrying American brand names but assembled in Mexico or Canada will incur these additional costs. For instance, the Chrysler Pacifica PHEV, built in Canada, and the Ford Mustang Mach-E, constructed in Mexico, fall under this category. On the other hand, several foreign automakers such as BMW, Kia, and Volkswagen produce some of their battery-powered cars within the U.S., thus avoiding these import levies. The Hyundai Ioniq 5 and Kia Sportage PHEV, assembled in Georgia, exemplify this scenario.
Adding to the confusion are impending tariffs on auto parts, set to take effect in early May, along with country-specific reciprocal tariffs that could increase in July. These measures impose an extra 10 percent fee on goods produced outside the U.S. According to AlixPartners, key imports include aluminum wheels from China, tires from Thailand, and wire harnesses from Vietnam. Furthermore, reciprocal tariffs now apply to goods made in Mexico and Canada, reversing previous exemptions. This development introduces additional challenges for automakers sourcing parts from these regions.
The manner in which automakers will handle these increased business costs remains uncertain. Options range from spreading the import fees across their entire lineup to absorbing the tariffs themselves while seeking supplier assistance. Such uncertainties have already led major manufacturers like General Motors, Toyota, Ford, and Volvo to scale back their electrification ambitions even before the tariff announcements. The future of U.S. EV and PHEV tax credits hangs in the balance, compounded by waning buyer interest in electrified vehicles. The tariffs exacerbate existing cost challenges during what was already anticipated to be a challenging transition phase towards electric mobility.
Looking ahead, there is optimism regarding the expansion of American-assembled plug-in vehicles. Hyundai recently inaugurated a $7.6 billion plant in Georgia, where it has commenced production of electrics and hybrids. Affiliated Kia will also manufacture hybrids at this facility. Ford’s "BlueOval City," despite delays, is scheduled to open in Tennessee in 2027. Vietnamese EV-maker VinFast plans to establish a factory in North Carolina, albeit with delays. Volkswagen’s all-electric Scout Motors brand is constructing a factory in South Carolina. Rivian, after pausing its Georgia plant development due to federal loan questions, aims to break ground in 2026 and commence production in 2028. Specific upcoming models, such as Hyundai’s three-row electric Ioniq 9 SUV, Lucid’s Gravity SUV, and the all-electric Acura RSX, highlight the growing presence of U.S.-assembled electrified vehicles.
Despite the current complexities introduced by tariffs, the automotive landscape is evolving with a focus on increasing domestic production. While the next generation of EVs may come with higher price tags due to these economic shifts, the emphasis on American-made vehicles offers a promising outlook for the industry's resilience and adaptability.