Another possible casualty of Trump’s trade war? EV and AV innovation

To invest or not to invest?

That’s the question automakers could be asking themselves about emerging technologies as they batten down the hatches amid a global trade war and accompanying economic turmoil.

US manufacturers already have committed hundreds of billions of dollars to EVs, and billions into developing self-driving cars. Now, faced with the prospect of significant cost increases thanks to President Donald Trump’s tariffs, business leaders might look to cut spending on technologies that have yet to yield meaningful returns.

“If they can’t pass the entire amount onto the end customer, then the investment dollars both into autonomous [vehicles] in particular, the software-defined vehicles, and electrification, all becomes at risk,” C.J. Finn, PwC’s US automotive industry leader, told Tech Brew.

But that strategy could be risky, according to experts.

“It’s a double-edged sword,” Lenny LaRocca, US auto sector leader for KPMG, said. “Instead of cutting in areas like autonomous or software, they need to double down on that to keep their product competitive.”

Pressure’s on: The Trump administration’s tariffs, including a 25% duty on all vehicle imports, are leading to major cost increases for the notoriously low-margin auto industry.

And in recent years, it’s been investing heavily in technologies like software-defined vehicles and EVs. Swamy Kotagiri, CEO of Canadian auto supplier Magna, highlighted this dilemma during a recent Automotive Press Association event: From 2015 to 2024, he said, major auto manufacturers’ R&D and capex spending has ballooned 40%, while volumes have remained flat.

“Navigating uncertainty and finding solutions together” is the only option, Kotagiri said. “We have to find a way.”

The industry is experiencing what LaRocca described as “compounded volatility,” due not just to the trade policy changes, but supply chain disruptions, investments in new technologies, inflation, and policy uncertainty around trade and EVs.

Strategies the industry used to navigate past crises are not enough this time around, he said: “The new tariff adds more pressure on the industry to reassess its business model. Pivot to be more innovative. Form new alliances and look for consolidation opportunities to drive synergies and efficiencies.”

Innovation at risk: Experts say that industry leaders will likely look for cost savings wherever they can find them.

“So that consumers do not have to burden these cost increases entirely, OEMs will be forced to reevaluate the technology and components they use in their vehicles, seeking less expensive and more efficient alternatives, while also pushing some R&D initiatives out in time,” Brad Rosen, COO of Nodar, which develops 3D vision systems for AVs, said in an email.

Rosen speculated that advanced driver assistance systems could be one of the first areas automakers pull back on, given how expensive they are to make. This could mean “that automotive innovation will slow down in the short-term and make cost efficiency the top priority.”

Pump the brakes: Even before Trump’s policy changes, many automakers had started to pull back on EV investments amid slower demand.

“We’ve already seen some announcements from OEMs who have introduced full electric platforms, that are now actually contemplating spending R&D dollars to [convert back] to ICE. That’s not a reflection of…any of the changes in tariff policies,” Steve Patton, EY Americas automotive sector leader, said during a recent roundtable. “The consumer, at least the US consumer, is having a bit of a pause in whether they want to adopt.”

Though EV adoption is expected to continue, it’s now likely to do so at a slower pace. S&P Global Mobility has revised downward its projections for US EV sales, from 6.5 million units annually to 5 million by 2030, and now expects EVs to make up 30% of new-vehicle sales in the US by 2030, down from 40%.

And given the US EV sector’s heavy reliance on raw materials and batteries from China, the new tariffs could slow progress on reducing EV production costs in North America, according to research from Cantor.

“I do think that there will have to be decisions to be made,” Patton said. “So if tariffs tend to be more permanent and we do have a higher cost, somewhere we have to pass that on—whether it’s passing it on to the consumer in higher prices, or it’s changing the cost profile of the vehicle itself.”

In addition to cutting costs, experts say that automakers will find sourcing alternatives, look for opportunities to move production capacity to underutilized plants in the US, use emerging technologies like AI to gain greater transparency into their supply chains, reduce expensive content in some vehicle models, and reevaluate which technologies are worth investing in. They also emphasized the need for more partnerships aimed at sharing costs, risks, and expertise.

“The industry,” LaRocca said, “needs to get much more comfortable doing those types of deals.”