Automotive Supply Chain Risk Digest #425
March 21 - 27, 2025, by Elm Analytics
Navigating the New Tariffs: What You Need to Know
The recently announced tariffs are causing widespread confusion among OEMs and suppliers. The rules are unclear and constantly shifting, leaving many unsure of how to adapt. Here's what automotive manufacturers need to know right now:
Key Impacts:
Higher Manufacturing Costs:
US suppliers importing foreign components will face increased manufacturing costs due to tariffs on imported products.
Volume Decline for North American Suppliers:
Suppliers in the US, Canada, or Mexico shipping parts for vehicles made in Mexico or Canada may experience a significant volume drop. This remains true even if their parts meet USMCA standards, as higher vehicle prices reduce demand.
USMCA Compliance Pressure:
Suppliers manufacturing in Mexico or Canada and shipping to the US are under increasing pressure to prove USMCA compliance. Most Tier 2 and below suppliers aren't compliant, putting them at risk as higher vehicle prices dampen demand.
Financial Impact:
Our recent study shows that just a 5% increase in input costs could push around 18% of suppliers into financial distress, surpassing levels seen during the 2008-2009 Automotive Crisis of the Great Recession. This projection does not account for reduced volumes, which would further undermine financial stability.
What You Can Do Right Now:
Clean Up Supplier Data:
Accurate supplier data is essential for planning and crisis management. Incomplete or outdated information hampers decision-making and exposes you to legal and financial risks, especially with USMCA compliance. Fix data quality issues immediately to safeguard your operations.
Monitor Supplier Health:
Regularly assess your suppliers' financial stability and proactively address risks to avoid production disruptions. Acting early can make the difference between continuity and crisis.
Implement USMCA Tracking:
Set up comprehensive USMCA compliance tracking and require your suppliers to do the same. Staying on top of compliance will help protect your business and mitigate tariff impacts.
Map Your Supply Base:
Trace your supply chain as deeply as possible to identify vulnerabilities and prepare for potential impacts. This is a time-consuming process, but companies should start now. Begin with data cleanup to ensure accurate information throughout your supply network.
If you need support with any of these steps, we're here to help.
→ Drop us a line at +1 (248) 660-9356 or message us through our website.
Contents
BANKRUPTCY
Neta Auto secures $215M to survive
EXPANDING
Hyundai invests $21B in US expansion
Fuyao Glass invests $40M in Illinois
HUMAN CAPITAL
Stellantis offers voluntary buyouts to workers
LITIGATION
Increased criminal enforcement of trade rules
MERGERS, VENTURES, ACQUISITIONS
Chery partners plan $1B Turkey facility
India’s EV battery plans face challenges
OPENING
PPG opens coatings plant in Thailand
Thanh Cong opens $340M car factory
PRODUCTION DECREASE
Toyota delays new EV battery plant
PRODUCTION INCREASE
BYD targets 5.5M vehicle sales in 2025
Toyota global production up 6% in February
REGULATION
Trump imposes 25% tariff on imports
Tesla benefits from high domestic production
New tariffs increase automaker costs
SHUTDOWN
Cleveland-Cliffs to idle Michigan plant
Bankruptcy
Chinese EV maker Neta Auto has secured a $215M credit line in Thailand to support its struggling operations amid a debt crisis.
"Many suppliers have come to demand payment in recent weeks," revealed one headquarters employee who requested anonymity.
"The company is currently negotiating solutions with suppliers, many of whom have been owed money for months or even a year or two. Given our dire situation, it's unclear who will actually get paid."
With domestic operations essentially collapsed and employees facing reduced salaries, Neta is pivoting to Thailand to stabilize finances after losing key talent and facing liabilities of about $1.4B. While the credit line provides temporary relief, Neta's financial challenges and declining domestic sales threaten its long-term viability.
Expanding
Hyundai plans to invest $21B in the US over three years to enhance production and supply chain capabilities. This includes $9B to boost US vehicle production capacity to 1.2M across its brands, with plant upgrades in Alabama and Georgia.
Additionally, $6B will support the EV parts supply chain expansion, including batteries. Hyundai Steel will also build a new steel mill in Louisiana to produce 2.7M tons of steel annually for its vehicles, including EVs.
Fuyao Glass will invest $40M to build a new float glass production line $ at its Illinois plant to secure raw material supply and reduce production costs. The expansion supports Fuyao's US automotive glass production, which supplies major automakers, including GM, Ford, BMW, and Honda.
Human Capital
Stellantis is offering voluntary buyouts to factory workers at plants in Detroit, Ohio, and Illinois as part of ongoing cost-cutting measures following a challenging 2024. The United Auto Workers union negotiated a package providing options for retirement or voluntary termination, with employees given until May 8 to decide.
Litigation
Foley: Criminal Enforcement of Trade, Import, and Tariff Rules: A Growing Risk for Businesses
Mergers, Ventures, Acquisitions
Turkey announced that partners of Chinese automaker Chery will invest $1B to build a manufacturing facility in Samsun, with a capacity of 200k vehicles per year, including electric and hybrid models. Chery denied direct involvement in building the plant, stating they are exploring partnerships to expand their business in Turkey.
India's plans to localize EV battery production face significant challenges, including execution delays, global oversupply, and heavy reliance on China for key materials and equipment.
Despite aiming for over 150 GWh of capacity by 2030 and significant investments, many projects are still in the early stages. The Production Linked Incentive scheme has seen slow uptake, with few companies meeting output criteria.
Additionally, low domestic EV demand and rising competition from China threaten the financial viability of new battery ventures.
Opening
PPG has opened a waterborne automotive coatings plant in Samut Prakan, Thailand, with an annual capacity of 2k tons to meet the growing demand for sustainable coatings in Southeast Asia.
Vietnam's Thanh Cong Group has inaugurated a $340M car factory in Quang Ninh to produce 120k Skoda cars annually.
Production Decrease
Toyota has postponed the construction of its new EV battery plant in Fukuoka, Japan, which was supposed to start production in 2028. The plant was intended to produce advanced lithium-ion batteries that offer over 620 miles of range and fast charging in 20 min.
This delay is due to lower-than-expected demand for EVs and increasing construction costs. As a result, the launch of Toyota's next-generation electric Lexus sedan may be pushed back as the company reviews its production plans.
Production Increase
BYD has set a sales target of 5.5M vehicles for 2025, representing a 29% overall increase from 2024. Over 800k of those vehicles are expected to be in overseas sales, a rise of 92% compared to 417k in 2024. To achieve this goal, BYD plans to launch nearly 20 new models across its four brands (BYD, Denza, Yangwang, Fang Cheng Bao) and expand sales channels, especially for high-end brands like Denza.
Toyota's global production rose 6% year-on-year in February, driven by a 16% increase in domestic output and strong sales in Japan, while overseas production saw less than 1% growth.
Regulation
President Trump has issued a proclamation imposing a 25 percent tariff on imported cars and auto parts. The tariffs apply to passenger vehicles, light trucks, and essential components such as engines, transmissions, powertrains, and electrical parts.
The tariff on vehicles will take effect on April 3, 2025, while the tariff on parts and components will be implemented no later than May 3, 2025. More parts may be added to the tariff list, and updates will be published in the Federal Register.
Here’s a high-level overview (as of March 27th):
Key Takeaways for Automotive Supply Chain Professionals:
Tariff Impact Is Additive:
The 25 percent tariff is applied in addition to any existing duties, fees, or charges, significantly increasing the cost of imported vehicles and parts.
Unclear Parts List and HTS Codes:
The specific list of parts and their tariff codes (HTS codes) has not yet been published in the Federal Register.
Listed parts and components will be subject to the full tariff.
Parts not explicitly listed will still incur the tariff, but only on the non-US content.
It's essential to monitor updates to know which parts are affected and how to comply.
US Content Definition and How It Works:
Automotive manufacturers can reduce tariff costs by documenting US-made content for vehicles that qualify for preferential treatment under the USMCA.
US content is defined as parts that are wholly obtained, entirely produced, or substantially transformed in the United States.
The non-US content is calculated by subtracting the value of US content from the vehicle's total value.
The 25 percent tariff will apply only to the non-US content if adequately documented.
If US content is reported inaccurately, the entire value of the vehicle will be subject to the 25 percent tariff retroactively and going forward.
Knock-Down Kits and Parts Compilations:
The 25 percent tariff fully applies to knock-down kits and parts compilations, regardless of whether some components are US-made.
Future Monitoring and Adjustments:
The Secretary of Commerce can change, add, or remove tariffs based on ongoing assessments.
This includes expanding the list of affected parts or altering tariff rates.
Companies should be prepared to monitor and adapt as regulations change.
What to Do Now:
Reassess Sourcing Strategies - Consider relocating production to the US or finding domestic suppliers.
Document US Content Accurately - Carefully calculate and report the value of US-made parts to reduce tariff liability.
Stay Informed - Keep an eye on the Federal Register for the list of affected parts, timing changes, and further updates.
The new tariffs will raise costs and create compliance challenges for automakers and suppliers. Proactively documenting content and adjusting sourcing strategies will help minimize financial risks and ensure smooth operations.
NYTimes: Latest Tariff Updates and Timeline
President Trump's new 25% tariffs on imported cars and auto parts will increase costs for global automakers and push consumer prices.
Still, Tesla may benefit due to its high level of domestic manufacturing. Tesla's US-made cars and components reduce exposure to tariffs, while rivals like Hyundai, Toyota, and GM face significant financial impacts from their reliance on imported vehicles and parts.
Hyundai and Kia could see annual tariff costs of up to $7B, while Toyota's operating profit may drop by 6%. Despite its domestic production advantage, Tesla still expects some cost impact from tariffs on imported components.
Shutdown
Cleveland-Cliffs will temporarily idle operations at its Dearborn, Michigan, plant this summer, resulting in approximately 600 layoffs due to weak US automotive production.
The affected facilities include the blast furnace, basic oxygen furnace, and continuous casting operations while finishing facilities will remain operational, retaining 550 workers.
