North American supply chain under Trump: How the IRA pause affects the EV supply chain

In his first week of office, Trump announced a pause on funding from the Inflation Reduction Act (IRA), first introduced in 2022 to boost incentives for purchasing and maintaining electric vehicles (EVs). The White House said the pause targets programmes that discourage fossil fuel development, or support EVs. 

Trump’s pause on funding through the IRA is likely to reduce investment in EV manufacturing and logistics in the US, and could potentially affect the wider North American supply chain and global logistics.

As mentioned in our previous article, Trump also promised to “revoke the EV mandate”, but this does not exist in the US. However, he could be referring to the Environmental Protection Agency’s rule that requires OEMs to cut greenhouse gas emissions in half for light and medium vehicles by 2027. By signaling a turn from EVs to back to ICE, it could change demand curve and adoption for EVs by both the consumer and OEMs and impact investment for EV production. He could also be referencing his predecessor Joe Biden’s target for 50% of new vehicles sold in the US to be electric by 2030.

EV supply and demand in flux

Previously, OEMs have struggled to balance supply and demand for EVs. As mandates across the globe have put more pressure on carmakers to increase the production of EVs, the demand is lagging behind. In response to this, some OEMs in North America have employed strategies including nearshoring and digitalisation to strengthen EV supply chain resilience, such as GM. The carmaker has been partnering with battery specialists like LG Chem and Ultium Cells to take more control of its EV battery supply chain. However, in December the carmaker announced it was selling its stake in the Ultium Cells battery cell plant in Lansing, Michigan to its joint venture partner LG Energy Solution. 

Other OEMs, including Ford, have changed tack on their EV plans by switching to hybrid models, hoping to gain competitive advantage in a difficult market.

Trump’s move, in the short-term, could help balance the supply and demand for EVs, allowing carmakers to sell their inventory and ease up on production, but with so much already invested into EVs across the North American automotive industry, a longer pause or complete scrapping of EV incentives could be money down the drain for OEMs.

Stephanie Brinley, associate director of AutoIntelligence at S&P Global Mobility said: “While consumer uncertainty and resistance to change relative to full electrification remains, activity under President Trump, as expected, paint a clear expectation for US policy direction in the immediate term.”

She added: “As policy details continue to come into focus, even if details are outstanding, we will begin to see decisions being made. We fully expect automakers are ready to act, and many have a clear idea of where they will move their propulsion system design mix.”

The Alliance for Automotive Innovation (AAI), which campaigns for a cleaner, more efficient automotive industry, issued a statement following Trump’s executive order on EV regulations. John Bozzella, president and CEO of the alliance said that “anyone who has been paying attention knows there’s a mismatch between current EV market dynamics and the emissions and EV sales targets called for in recent regulations”.

Bozzella added: “The country should have a single, national standard to reduce carbon in transportation. We can’t have regulations that push the industry too far ahead of the customer. The customer is in charge. More balance between the regulations and the preservation of customer choice is the goal.”

We will update this story as more details are announced…