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Bumpy Road Ahead for Automotive SectorBumpy Road Ahead for Automotive Sector
By any measure, 2024 was a tumultuous year for the world in general and the auto industry in particular. Turmoil and tech disruption may be among the milestones of 2025.
Stephen Moore
December 28, 2024
7 Min Read
Pom669/iStock via Getty Images
Barriers to the free-trade freeway
President-elect Donald J. Trump will be sworn into office on Jan. 20, 2025, bringing with him a specter of punishing tariffs potentially creating turmoil in the highly integrated North American automotive sector. The United States-Mexico-Canada Agreement (USMCA, i.e. NAFTA 2.0) accounts for 22% of total trade, making it a valuable economic contributor and target in recent trade disputes, according to a report from Scotiabank.
US imports of motor vehicles and parts from Canada and Mexico in US dollars based on data from Scotiabank Economics and the US Census Bureau. Image courtesy of Scotiabank.
Will this pass as mere threats if Mexico and Canada address perceived border issues related to immigration and the smuggling of fentanyl, or will we see 25% tariffs on Mexican and Canadian auto and part imports on day one? Further clouding the situation is Mexico’s growing relationship with China, which has been a point of contention for the incoming administration. Chinese companies, including automakers, have been setting up production facilities in Mexico to subvert potential tariffs on made-in-China products.
If tariffs, indeed, are implemented, relocating a substantial portion of production of autos and parts to US soil will not happen overnight, if ever. And despite claims to the contrary, US consumers will be forking over more for their next auto purchase.
EV laggards restructure, or disappear
It’s essentially unheard of for automaker Volkswagen, partly owned by the Lower Saxony state government, to lay off workers, but faced with high operating costs, increased competition from Chinese OEMs, and lost ground in the EV stakes, VW plans to close plants in Germany and dissolve long-standing labor agreements with trade unions as it searches for profitability.
The European marque is not alone in its travails. It’s amazing to think that Nissan was a pioneer in EVs when it debuted the Leaf in 2010, but has also lost out big time to the likes of China’s BYD, Geely, SAIC, and Chery, which have surpassed Japanese EV technology and are priced significantly cheaper. With a dated and lackluster model line-up, Nissan is reaching out to fellow Japanese OEM Honda for a lifeline, although both companies have limited EV offerings and Honda is a stronger player in hybrid drive trains. In the typical Japanese procrastinating business culture, the two firms target being owned by the same holding company by 2026, while fellow Japanese OEM Mitsubishi Motors, in which Nissan holds a stake, will decide whether it wants to join the new corporate structure in January 2025.
Speaking of Chinese EV OEMs, of the more than 160 existing Chinese EV brands, only 25 to 30 are expected to remain financially viable by 2030, according to consultancy AlixPartners.
Can battery production globalize?
2024 saw two major announcements regarding battery separator film investment in North America, but how about investment outside of China in EV battery production itself? China currently possesses around 66% of the world's capacity for Li-ion battery manufacture, and its share is forecast to rise to 70% by 2030.
Compounding the challenges in nearshoring battery manufacture is China’s high share of raw material inputs going into batteries. China refines the majority of the world's lithium, has significant control over cobalt refining, is a major player in nickel processing for batteries, and processes and produces the vast majority of battery-grade graphite. China may limit exports of these key inputs in response to tariffs if they are imposed by the Trump administration.
Without such major disruptions, the United States is expected to be the second-largest producer of lithium-ion batteries by 2030, according to Benchmark Mineral Intelligence. Localizing of production is supported by the US Department of Energy, which recently announced a $9.63-billion loan to BlueOval SK (BOSK) to further expand US manufacturing of EV batteries. BOSK is a joint venture between Ford and SK On, a leading Korean EV battery manufacturer. The plants — one located in Tennessee and two in Kentucky — would enable more than 120 GWh of US battery production annually.
Plants in the United States and elsewhere will have to prove their cost effectiveness, as highlighted by the 2024 bankruptcy of great European hope Northvolt of Sweden, which struggled against Chinese competitors amid a glut of EV battery manufacturing capacity. But there is hope: LG Energy Solution, for example, plans a $1.5-billion joint venture with Indian firm JSW Energy to localize production on the subcontinent for automotive and energy storage applications. JSW also has a joint venture with China's SAIC Motor for local vehicle production.
Electric boats clean up waterways, and reduce traffic congestion
New Zealand has a high rate of pleasure boat ownership. Nevertheless, I was surprised to learn that 34% of total residential and 54% of residential non-electricity emissions were derived from recreational boating. These "residential non-road" transport emissions could be ripe for electrification, as could be short ferry services in tourism hubs and other locales.
Electric ferry crossings on Lake Tahoe in California and Nevada will cut travel time in half, reduce congestion, and slash emissions. Image courtesy of Candela/FlyTahoe.
The world’s first electric hydrofoil ferry, the Candela P-12, launched its debut emissions-free service in Stockholm in October 2023, and the first US service is due to start up at Lake Tahoe in California and Nevada this year. The 30-minute cross-lake service will cut travel time in half compared to the daily 20,000 car trips along the same route. Travelers can find themselves stuck in long car lines around Lake Tahoe, especially in winter, because of road closures caused by heavy snowfall. Electric lake crossings have the potential to cut into emissions associated with this road transport, and operating costs are reportedly lower than diesel-propelled vessels, to boot.
Airships, anyone? No longer a load of hot air
Attendees at global sustainability conferences and plastics-related confabs, such as the Intergovernmental Negotiating Committee on Plastic Pollution, often have no option but to travel there by air. And it’s probably the case that senior negotiators and executives make the cardinal non-sustainable sin of traveling business class. Passengers seated in business class are responsible for 2.6 to 4.3 times more emissions than if they were to fly in coach with the great unwashed.
While the global air travel sector is making efforts to reduce its environmental footprint through partial use of sustainable air fuel (SAF) derived from biomass, large-scale electrification appears a long way off, at least for long-haul flights. Several innovative startups, however, are looking back to the early 20th century for a potential solution — airships.
A potential zero-carbon-emitting form of air transport, airship technology is attracting the attention of innovative startups, including French company Flying Whales. It is developing airships for cargo transport and disaster relief, among other uses. Image courtesy of Flying Whales.
Airships typically traverse the atmosphere at around 100 to 130 km/h (62 to 81 mph), consume far less energy for propulsion, and potentially could operate with electric engines powering liftoff and steering, making them a zero-carbon emitting form of air transport. They can also take off and land if there is enough flat space.
The world’s largest aircraft — the helium-filled Pathfinder 1, a prototype electric airship that maker LTA Research hopes will kickstart a new era in climate-friendly air travel — is currently undergoing testing in California’s Silicon Valley. LTA Research is funded by Sergey Brin, the co-founder of Google.
Other innovators in the airship space include British company Hybrid Air Vehicles (HAV), which is focused on developing a hybrid airship using electric propulsion and helium to deliver a zero-emission form of air travel. French company Flying Whales, meanwhile, is developing airships for cargo and other uses, such as disaster relief, wind turbine installation, and offloading of containers from ships. Developers of airships highlight the simplified infrastructure requirements for handling arrivals and departures compared with jet aircraft and trains.
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