Trump's IRA Suspension Order: Impact on Hyundai and Tesla

On his first day in office, President Trump delivered on expectations by ordering a review of existing trade agreements and an immediate halt to spending under the Inflation Reduction Act (IRA). This move is likely to have significant ramifications for automotive and battery companies in the U.S., particularly Hyundai and Tesla. This article analyses the implications for the automotive industry and provides strategic investment guidance.

Key Policy Changes by Trump

• Directive to Halt IRA Spending: President Trump announced his intention to abolish unfair subsidies under the IRA, including tax credits.
• FTA Review: He ordered a review of existing trade agreements, including the U.S.-Korea Free Trade Agreement, to address trade deficits.
• Increased Tariffs: Discussions are underway to impose a 25% tariff on imports from Mexico and Canada, which could significantly impact the automotive sector.
• Reconsideration of EV Subsidies: The continuation of EV tax credits and corporate support programmes (AMPC) remains a key point of interest.

Economic and Industry Impact

Implications for Hyundai and Tesla

• Challenges and Responses for Hyundai:
  • Hyundai has leveraged IRA tax credits to make substantial investments in its Georgia plant.
  • Some models using Chinese-made components risk exclusion from subsidy eligibility.
  • Trump's tariff policies and subsidy cancellations could increase production costs and strain Hyundai’s competitiveness.
• Tesla’s Reaction:
  • Tesla welcomed the repeal of the IRA, viewing it as a greater setback for competitors.
  • Despite subsidy cuts, Tesla remains the only EV manufacturer in the U.S. consistently generating stable profits.

Global Supply Chains and Trade Environment

• Dependence on China: Trump criticised the IRA for increasing reliance on Chinese minerals and signalled policy shifts to reduce this dependency.
• Price Increases Due to Tariffs: A 25% tariff on imported vehicles could raise average car prices in the U.S. by approximately $3,000.

Investment Strategies: Navigating Volatility in the Automotive Sector

Traditional and Electric Vehicle Segments

• Investing in Hyundai:
  • Focus on Hyundai stocks, considering its efforts to expand local production and strategic responses.
  • Investments in facilities like the Georgia plant signal long-term growth potential.
• Investing in Tesla:
  • Tesla’s strong market position makes it a stable investment choice, even amid subsidy rollbacks.

Battery and Raw Material Markets

• Battery Manufacturers:
  • The end of IRA support could increase costs for battery manufacturers.
  • Monitor the ability of Chinese and South Korean firms to maintain their U.S. market positions.
• Investing in Raw Materials:
  • Pay attention to markets for critical EV battery materials like lithium and nickel.
  • Trump’s policy shifts may influence demand for these resources.

Diversification and Defensive Strategies

• Safe-Haven Assets: Gold and Treasury bonds are effective in mitigating market volatility.
• Global Diversification: Invest in automotive and battery manufacturers outside the U.S. to spread risk.

Recommended Portfolio Allocation

• Growth Assets: Allocate 30–40% to stocks in the automotive and battery sectors.
• Safe Assets: Invest 20–30% in gold and Treasury bonds to shield against economic fluctuations.
• Global Diversification: Dedicate 20–30% to international equities and emerging markets for a balanced portfolio.

Considerations for Investors

• Monitor Policy Changes: Keep track of shifts in trade and industrial policies under the Trump administration.
• Assess Risks: Evaluate the impact of tariff policies and subsidy removals on specific companies and industries.
• Maintain a Long-Term Perspective: Focus on assets with strong long-term growth potential despite short-term volatility.

Conclusion

Trump’s directive to suspend IRA spending and implement tariff policies will bring significant changes to the automotive and battery industries. Investors must adapt their portfolios to these shifting dynamics, leveraging global diversification and defensive strategies to secure long-term performance.