Tariffs have been a significant topic of discussion over the past two weeks. The main uncertainty revolves around whether these tariffs will be implemented as promised and how they would impact the prices of… well, everything, including electric vehicles (EVs). Ford’s CEO, however, is quite transparent about the true cost of these increased prices: it will be the consumers who bear the burden.
Welcome back to Critical Materials, your daily source for news on electric and automotive technology. Today, we’re discussing Ford’s acknowledgment that tariffs will likely lead to higher costs for new car buyers, Toyota’s new ventures in China, and Xiaomi’s ambitions for substantial profits from the upcoming SU7 Ultra. Let’s get started.
During Ford’s recent financial call on Wednesday, CEO Jim Farley was unapologetically clear. He stated that if U.S. President Donald Trump follows through with 25% tariffs on imports from Canada and Mexico, it would ultimately be the new car buyers who would bear the brunt of Ford’s increased expenses.
“There is no doubt that tariffs at the 25 percent level with Canada and Mexico, if they persist, would significantly impact our industry,” Farley warned, reiterating sentiments expressed by many industry analysts in recent weeks. He elaborated:
“With billions of dollars in industry profits potentially lost, along with adverse consequences for U.S. jobs and the overall value chain in our sector, tariffs would also lead to elevated prices for consumers.”
Trump officially announced tariffs against these long-standing trade partners over the weekend, indicating they would take effect on Tuesday, alongside an additional 10% increase on goods imported from China. As the deadline approached, he declared a 30-day pause for Canada and Mexico’s trade negotiations during which specific terms will be discussed. To put it simply: no new tariffs for now, but the 25% option isn’t entirely off the table.
Farley’s concerns are well-founded. Ford, like many car manufacturers operating in the U.S., has its supply chain intricately linked with those in Canada and Mexico. Take the Ford Mustang Mach-E, for example, which is produced in Cuautitlan, Mexico, or the numerous engine plants in Ontario, Canada, that supply powertrains for various Ford vehicles. Consequently, should prices rise due to tariffs, it’s no surprise that consumers would ultimately be responsible for those costs. This could hold true even regardless of the outcomes in Canada and Mexico since the 10% tariffs from China took effect this week.
How significant is this increase, you might wonder? Analysts anticipate an average cost rise of around $3,000 per vehicle, but some projections suggest it could soar to $9,000 or even higher, depending on the vehicle model. Elevated prices could consequently lead to a downturn in sales, prompting production cuts and possibly layoffs throughout the sector. These effects would likely reverberate along the North American supply chain.
On a positive note, Farley expressed a cautious optimism about the auto industry’s future under the current administration:
“Our discussions in Washington with the Trump administration and congressional leaders suggest they are focused on strengthening, not undermining, our nation’s automotive industry,” said Farley.
For consumers, the situation is a waiting game as all parties work towards resolving Trump’s trade dilemma. If a consensus isn’t reached next month, consumers may end up bearing the financial strain. Even if North America successfully avoids a trade conflict, auto industry executives certainly have not forgotten the turbulence surrounding these tariffs.
Toyota has historically shied away from commitment in certain automotive technologies, dabbling in a variety of options—BEVs, PHEVs, mild hybrids, and hydrogen. This multi-pathway strategy has allowed Toyota to hedge its bets in a fast-evolving consumer landscape, and it seems that choice has proven wise.
Recent sales of Toyota’s BEVs in North America haven’t exactly soared; as GM CEO Mary Barra noted, the market is “not developing” as swiftly across the continent as expected. Consequently, Toyota is now focusing its efforts on the Chinese market, where BEVs and PHEVs are popular, and is adopting Tesla’s strategy by establishing a wholly-owned EV and battery plant in Shanghai.
“We decided to set up a wholly owned firm for developing and producing Lexus BEVs and batteries in Shanghai,” announced Toyota CFO Yoichi Miyazaki following the company’s quarterly earnings report on Wednesday. He added: “Our aim is to become a company that is more cherished and supported by the people of China.”
For those unfamiliar with ownership regulations in China, it’s typically uncommon for foreign businesses to own or operate an automotive brand there without local partnerships. For instance, Volkswagen collaborates with SAIC and FAW, Ford partners with Changan and JMC, and Toyota has ties with FAW and GAC. However, Tesla broke new ground by being the first foreign car manufacturer to own a venture in China upon establishing Gigafactory Shanghai in 2019.
Toyota is now poised to follow suit, utilizing its Lexus brand for this initiative. According to Fortune:
Toyota’s factory in Shanghai will produce a new BEV for its premium Lexus line, with production set to begin in 2027, and the initial capacity is projected at 100,000 units per year, creating 1,000 new jobs in the process.
Additionally, Toyota emphasized its desire to promptly satisfy Chinese demand for new energy vehicles, a category that encompasses both battery electric vehicles and plug-in hybrids.
Toyota’s endeavor in establishing a new Shanghai facility mirrors Tesla’s approach. The U.S. automaker wholly owns its gigafactory in Shanghai, marking the first car plant in the country to operate independently without a local partner.
China began to reduce restrictions on foreign automakers in 2018, paving the way for Tesla’s operations. Shanghai is now home to Tesla’s largest worldwide facility. Nevertheless, the country is rife with automakers producing electric vehicles. So what’s Toyota’s strategy here?
As the largest car manufacturer by volume, Toyota’s move could be perceived as a chance to highlight the advantages of local production and exports from within China—especially if Lexus vehicles manufactured in Shanghai are sold internationally. This might help underscore China’s importance as an automotive export hub at a time when other nations are imposing tariffs against it. Or perhaps Toyota is simply seizing the opportunity to expand in its third-largest market after the U.S. and Japan. Only time will reveal the outcome.
If there’s one Chinese electric vehicle that American consumers should watch out for, it’s the Xiaomi SU7. Don’t just take my word for it; Ford CEO Jim Farley concurs. The SU7 is impressive, but Xiaomi isn’t stopping there; the company is also developing a high-end, performance-focused version called the…
SU7 Ultra, and this is the vehicle every performance enthusiast aims to drive.
Xiaomi’s founder and CEO, Lei Jun, expresses strong optimism about the potential success of the cell phone manufacturer-turned-automaker in selling a significant number of these vehicles. Given the positive reception the SU7 is receiving, it’s not surprising he feels this way. As the company resumes operations following the Chinese New Year, Jun is outlining ambitious annual objectives. Among them is a target to deliver at least 10,000 units of the Ultra-trim SU7 by year’s end.
This goal appears quite achievable, especially considering that Xiaomi delivered over 135,000 cars last year, marking its inaugural complete year in the automotive sector. The SU7’s strong sales prompted Xiaomi to continually raise its delivery goals throughout the year. Additionally, the company is set to introduce an SUV, the YU7, to compete with the Model Y. If everything unfolds as intended, Xiaomi aims to reach 300,000 vehicle deliveries by 2025.
However, it’s important to note that this specific version of the SU7 comes with a hefty price tag. At an astounding $112,000, it’s priced similarly to a new Porsche 911. In contrast, the base SU7 starts at just $29,900. That means there’s an $80,000 difference to access the full 1,526 horsepower. Still, Jun maintains confidence that the company can achieve its sales goals.
Xiaomi began accepting preorders for the SU7 Ultra shortly after its reveal in late October. In a remarkable demonstration of demand, the brand secured 3,680 preorders within just 10 minutes of opening the order books. The car is set to launch in March, coinciding with the release of the new Xiaomi 15 Ultra smartphone, making for an intriguing combination.
100%: Will Tariffs Push More EVs Towards Luxury Pricing?
EVs in the U.S. aren’t inexpensive (yet). This is the current market reality. While component costs have decreased, projections suggest that by the year’s end, battery prices could fall to half of what they were in 2019, with a continued downward trend anticipated throughout this decade (though at a much slower rate). However, this hasn’t translated into lower MSRP for new EVs. Presently, the average transaction price for EVs surpassed $55,000 in December.
While Canada and Mexico saw a pause in tariff conflicts, China has not been as fortunate, now facing a 10% tariff increase that American consumers are likely to feel in their daily expenses. This increase is expected to eventually impact the automotive sector, potentially negating any savings from lowering prices on EV technology, all amidst a backdrop of trade tensions. Does this imply that EVs might linger in a state of pseudo-luxury pricing for the foreseeable future?
Image Source: Jim Farley @ Instagram
