The U.S. auto industry faces a critical moment as it undergoes the largest transformation in almost one hundred years. Alternative drivetrains such as battery-electric vehicles, plug-in hybrids, and hybrids are on the rise; these vehicles have grown to over 19% of the car market in 2024, up from just 2% in 2015. This gain in market share has followed years of private sector investment in domestic manufacturing of electric vehicles and batteries. At the same time, China’s auto industry has grown to represent nearly 40% of all global passenger vehicle manufacturing. 

Both the Trump Administration and the U.S. auto industry acknowledge that more needs to be done to elevate U.S. competitiveness, attract investment, and create jobs here at home. 

Still, despite these shared goals, uncertainty around future public policy is making achieving these critical goals more challenging. Over the past few months, the administration has announced a series of tariffs that impact the auto industry, among other sectors. While ZETA believes that tariffs and tax credit incentives can both play a role in putting the U.S. electric vehicle market on a pathway to global dominance, electric vehicle manufacturing tax credits are essential to building out American manufacturing signified by the $200 billions of dollars in investments and jobs since 2020 for the EV, battery and critical mineral sectors.

The tariff debate and the discussion around EV incentives have been discussed to date as separate topics. However, they are interrelated, with the ultimate goal of both policies being to create jobs in the U.S. while making American-made vehicles more competitive on the global market. The EV tax incentives already aim to have manufacturing and final assembly in North America, and their implementation is showing real success. But there is also a great deal of uncertainty around their future. 

The Trump Administration's goal of placing the tariffs in the first place is to encourage auto manufacturers to scale up here in the U.S., and help ensure that the American auto industry continues to prosper domestically and in the global market. But recent research on the impact of the existing tariff regime suggests that this approach may result in higher prices for consumers paying for new vehicles, without having the intended effect of supporting manufacturing in the United States. 

In March, an analysis by Kelley Blue Book found that a 25% tariff on Mexico and Canada could add a cost of $3,000 per vehicle for consumers. Cox Automotive’s analysis determined that tariffs could increase costs even further, up to nearly $6,000 for a new car. The Anderson Economic Group published a study that suggests that car prices could be poised for increases of up to $12,000 as a result of tariffs, including high costs imposed on large SUVs, pickup trucks, and electric vehicles. 

With the average vehicle price for all new car sales hitting $47,442 in March, any of these potential price increases could put a new purchase out of reach for millions of American families. Recent changes from the Trump Administration on elements of its tariff policy will likely offer more flexibility for the car industry, which could limit some of the price increases outlined. The direct impacts on consumer behavior and pricing as a direct result of tariffs still remain. Furthermore, any increases to the prices of new cars are also likely to spill over into the used vehicle market: according to Cox Automotive, used car prices could remain elevated for several years, depending on whether auto tariffs remain in place. 

Over time, it is critical to have a higher level of policy and regulatory certainty to ensure that automakers and battery manufacturers can plan and make investments. While tariffs can encourage consumers to buy American, they also would raise key component costs for electric and gas cars. Additionally, with the signing of new potential deals, it is possible that tariffs that are levied on autos could vary on an automaker-by-automaker basis. This, too, would increase policy uncertainty and could disadvantage domestic U.S. automakers. 

At the same time, there is a debate in Washington on the future of federal incentives for electric vehicles. The credits have helped generate around $200 billion in investments since 2020, and supported hundreds of thousands of jobs here in the U.S. Removing EV incentives could raise the costs of these products, harm American competitiveness with rising global competition, and slow job creation in the growing EV sector. 

On the whole, the present state of the automotive industry involves a lot of uncertainty. But there is a way forward. 

Despite partisan divides on many topics in our current politics, the American people agree on building out affordable electric vehicles here in the United States. Building out an industrial policy that reflects that desire and uses multiple mechanisms, such as tax credits and targeted tariffs, is something we can reach industrywide consensus on.

The future of the auto industry is being built here in factories across the country – and that includes battery manufacturing that will be pivotal to the success of not only battery-electric cars but other alternative drivetrains. From Reno, Nevada, to Savannah, Georgia, Americans are taking part in the build-out of this new automotive and battery economy. 

ZETA stands ready to join conversations on the future of these essential policies and create a sustainable and bipartisan industrial framework that builds upon the great work by the private sector to strengthen the domestic EV and battery manufacturing industry. By doing so together, we can boost U.S. automotive competitiveness while ensuring that consumers will benefit from lower-cost, American-made products.