PwC comments on the impact of US trade tariffs on the UK automotive sector

Cara Haffey, Industrials and Services Leader at PwC UK, said:  

Economic Impact

“According to figures from the SMMT, the US is the second-largest car export market for the UK, with more than 101,000 units shipped in 2024, representing 16.9% of cars exported. Tariffs of any kind will therefore have considerable repercussions for the UK automotive sector. OEMs are having to consider their pricing strategies and responses, and we’ve seen announcements already across Europe for pricing updates. Particularly in the luxury car market, US consumers are both a key buyer and target.  

“UK automotive companies are now reconsidering their manufacturing site maps and exploring how they can expand existing US operations and assessing creating long-term US-based operations, if the market is or could be very important to their brand. This is very much long-term thinking, as such sizeable decisions take time to both plan and deliver.”

Supply Chain Considerations

“Tariff announcements will also bring a greater need for automotive companies to fully understand and map their supply chains. There are also potential grounds for issues where goods of varying origin are mixed into a single component, or if specific trade partners are treated differently, e.g. China to USA. UK manufacturers can also adapt their supply chains by looking at raw materials and parts that are impacted and assessing whether there are now economic benefits in localised sourcing.”

Dom Tribe, Automotive Sector Leader at PwC UK, adds:  

Strategic Response

“UK automotive companies can adopt several different strategies to counter the effects of US tariffs, such as the localisation of assembly or manufacturing operations in North America to avoid tariffs, while maintaining market access, although this takes time and requires significant capital. Additionally, they can consider diversifying or repositioning their supply chains to areas/regions that are less affected by any imposed tariffs, with vehicle production and key components being manufactured across Europe or multiple countries for example, to hedge against tariff and trade agreement disruptions.

“Companies could explore ways in which they could create greater product differentiation, such as more sustainable, luxurious or technologically advanced products that bring added value which consumers are willing to pay a premium for.

“Strategic alliances, such as partnering with US firms (e.g. contract manufacturers or other OEMs) with a US footprint could also help with reducing costs including shared distribution networks, warehousing etc. The suspension of the IRA budget may present an opportunity for UK companies to advance their own sustainable automotive solutions well beyond the US, which could then give the UK a competitive advantage, that some US customers are willing to pay a premium for.

“Finally, a push for subscription-based vehicle ownership models could help dilute the vehicle cost within a total cost of ownership model, reducing the exposure to tariffs that impact the asset cost, but not the service costs. As vehicles become more software defined (SDV), a lot of the hardware features that are impacted by tariffs, will be exempt, as they are replaced by software with wireless updates, that means fewer maintenance parts and, potentially, lower cost of ownership for customers.”

Market Dynamics

“The ever-growing divide of state-level variability in legislation, (e.g. California vs. Texas), may mean that UK automotive exports must create more variants of vehicle exports to comply with state legislation, which increase product mix, complexity and costs. With shifting emissions policies in the US, there may be a reduced demand for high-efficiency UK vehicles, coupled with a growing complex regulatory landscape, which will likely create additional compliance costs and increase time-to-market.

“With higher prices resulting from tariffs, there could be a shift in how long consumers keep their cars for. Some may move away from purchasing new vehicles altogether and buy second-hand. Others may look at buying non-premium vehicles (or premium vehicles with fewer options, if brand loyalty is strong), which will have a big impact on customer loyalty and profitability for OEMs that typically make larger profits on high-optioned vehicles.

“Companies may also look to adjust their contractual terms with US businesses buying-in components for assembly, by moving to cost plus models and/or flow-through pricing mechanisms, that would allow increased prices to be passed on to US businesses more easily.”