What could trade policy change mean for production and M&A?

A shift in US trade policy could bring dramatic changes to electric vehicle (EV) production and reshape the auto industry’s mergers and acquisitions (M&A) landscape. As a new US administration contemplates stricter tariffs, manufacturers and investors must adjust their strategies to navigate these headwinds.

Proposed tariff increases may target materials crucial to EV manufacturing, such as batteries, semiconductors, and rare earth elements. These changes could make overseas sourcing significantly more expensive, incentivising automakers to localise production. While this might create opportunities for US-based suppliers, it could also raise costs for automakers reliant on global supply chains.

Additionally, the elimination of tax credits, like the US$7,500 incentive under the Inflation Reduction Act, may further hinder domestic EV production. Without these subsidies, the cost of EV ownership could rise, slowing adoption rates and forcing automakers to adjust production goals. US manufacturers may prioritise profitability over volume, shifting focus to high-margin vehicles or alternative energy solutions.

Globally, protectionist policies in the US could prompt similar moves elsewhere, fragmenting the market. Companies will need to balance compliance with varying trade rules against the need to maintain competitiveness in key regions.

Possible protectionist policies are also pushing automakers to rethink supply chains. Nearshoring, or relocating production closer to primary markets, is gaining traction as labour costs and geopolitical tensions weigh on global operations. Some EV makers are already localising key processes, aiming to minimise tariff exposure and reduce logistics risks. This shift, however, isn’t without challenges. Building localised supply chains requires time and investment, particularly for specialised components like EV batteries. Companies that adapt quickly may gain an edge, while those slower to pivot risk supply disruptions or higher costs.

M&A as a strategic response

The evolving trade landscape is likely to drive a surge in M&A activity. Companies aiming to localise operations may look to acquire domestic firms with established manufacturing capabilities. Cross-border deals could also accelerate as international firms seek footholds in the US to sidestep tariffs.

Recent trends suggest a favourable environment for dealmaking. Global deal activity on Datasite, which annually facilitates close to 15,000 new deals, surged 45% year-over-year in the three weeks following the US election, with industrial deals contributing to this rise.

A pro-business administration and corporate-friendly tax policies could bolster confidence and reduce regulatory hurdles. Already, industrial deals have seen a significant uptick, reflecting optimism in the market. Many deals are also re-launching after being put on hold earlier this year—partly to wait out the US election and partly due to resourcing and bandwidth constraints from April-May’s heavy deal flow.

However, challenges remain. The removal of EV tax credits and fluctuating demand may dampen investment enthusiasm, particularly in capital-intensive EV ventures. Companies must focus on resilience, ensuring they’re ready to seize opportunities as they arise.

In this rapidly changing environment, technology can be a game-changer. AI-driven tools can streamline the M&A process, from organising documents to ensuring regulatory compliance. By reducing human error and speeding up due diligence, these tools enable businesses to act decisively amid uncertainty.

The next few years will test the auto industry’s ability to adapt. Stricter trade policies may increase costs and complexity, but they also present opportunities for companies willing to innovate. By rethinking supply chains, leveraging technology, and pursuing strategic M&A, businesses can position themselves for long-term success.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Mark Williams is Datasite Americas Chief Revenue Officer

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