Electronics and technology have long been a concern for Governments and their spy agencies. Hacking, data leaks, viruses and denial of service issues have the potential to cripple key infrastructure. The pager and walkie talkie attack (allegedly) by Israel on Hezbollah last week in Lebanon was a key reminder of the potential for technology to be weaponised.
In the US, electric vehicles (EVs) are the newest area of concern in a highly charged election campaign.
Reports have surfaced recently of planned US policy measures targeting Chinese EVs, suggesting that the US government might bar Chinese software and hardware from connected vehicles. This comes alongside existing tariff structures, such as a 27.5% import duty on Chinese-made vehicles. Meanwhile, in Europe, the European Commission has launched an anti-subsidy investigation into Chinese EVs, with many speculating that additional tariffs could soon follow.
These moves reflect growing concern among Western governments about China’s increasing influence in the global EV market. As Chinese manufacturers flood international markets with lower-priced vehicles, thanks to significant government subsidies, Western automakers are feeling the pressure to compete. The proposed tariffs are seen as a means to protect domestic industries, but they also risk escalating into broader trade tensions.
Following on from the Hezbollah attack, an area of concern that has been raised by US politicians (on both sides) is the potential for Chinese-made vehicles to be hacked and then weaponised against or spy on its drivers.
In Australia, the perspective is slightly different. Although Chinese-made EVs (such as BYD and MG) dominate the market due to their affordability, the Australian government has thus far avoided imposing strict tariffs. This open approach reflects a balancing act between keeping prices low for consumers and maintaining positive trade relations with China. It also reflects the fact, that unlike the US, Australia no longer has a local car manufacturing sector to protect.
As these tariffs and restrictions are discussed, professional investors are left to navigate a complex landscape. What do these shifts mean for car buyers in the US, Europe, and Australia, and how might they reshape demand for critical minerals like lithium, cobalt, and nickel? Let’s dive in.
Tariffs are essentially taxes imposed on imported goods, designed to either protect domestic industries or to penalise foreign producers for unfair trade practices. In the case of the US and Europe, the focus is on addressing the imbalance caused by China’s state-backed EV production. But what does this mean for consumers?
For US car buyers, higher tariffs on Chinese EVs could result in fewer affordable options. Currently, Chinese-made EVs such as those from BYD and Nio offer competitive prices, often undercutting US and European models. Should tariffs increase (as proposed by Donald Trump), the price gap between Chinese and Western vehicles would likely shrink (or even reverse), making domestic options more appealing but also potentially driving up overall EV prices. This may slow down EV adoption in the US, where affordability has been a key factor in consumer choice, although blanket across the board tariffs will shift the dynamics for all vehicle sales.
The European market is already saturated with Chinese EVs, with new tariffs having the potential to reshape the landscape. A reduction in the availability of low-cost Chinese models could push consumers towards higher-priced European alternatives, though this could limit the rate of EV adoption in lower-income segments. Nearly all of the European carmakers are ramping up the number of EV variants and models, which will also put pressure on the Chinese carmakers.
Australian car buyers, on the other hand, may continue to benefit from China’s low-cost EVs unless trade policies shift. Australia, with its strong dependence on imported vehicles, particularly from China, has largely avoided imposing harsh tariffs. But any escalation in a global trade war could disrupt this status quo, potentially leading to higher prices down the line, or conversely, for the local market to be saturated with models that were originally intended for the US or Europe.
For investors, the ripple effects of EV tariffs extend far beyond just the automotive sector. EVs rely on a host of critical minerals like lithium, cobalt, and nickel, many of which are sourced from Australia but also regions with complex geopolitical relationships.
China is not just a major player in the EV manufacturing space – it also dominates the supply chain for critical minerals, particularly for lithium, nickel and graphite. Over the past decade, China has built a stronghold on processing capacity for key materials required for EV batteries. This vertical integration, utilising lower wages, has given it considerable leverage in the global market.
If tariffs and trade restrictions curb China’s ability to export EVs, there could potentially be a domino effect on critical minerals demand. With reduced EV production in China or lower exports, demand for these minerals could slow in the short term. However, over the longer term, as Western economies ramp up domestic EV production in response to tariffs, demand for critical minerals may shift but remain strong.
Countries like Australia, with vast reserves of lithium and other essential minerals, could see increased investment interest as Western automakers (and the US Government through Inflation Reduction Act funding) look to secure supply chains that are less dependent on China.
But it’s not all upside. China could retaliate against Western tariffs by imposing export controls on critical minerals, as it did recently with restrictions on canola in response to Canadian EV tariffs. Such moves could squeeze supply chains, pushing up prices for automakers and possibly slowing down EV production globally.
The intersection of EVs, politics, tariffs and critical minerals is complex with a wide range of potential outcomes.
On one hand, tariffs could spur investment in Western automakers and battery manufacturers, as they seek to capitalise on reduced competition from Chinese players.
On the other hand, the possibility of supply chain disruptions due to retaliatory measures by China could introduce significant volatility into critical minerals markets.
For investors focused on base metals and critical minerals, this evolving landscape offers both challenges and opportunities. The push for EV production in the US and Europe (as well as the natural planned transition by carmakers to EVs) should increase demand for raw materials like lithium, nickel, and cobalt, boosting the fortunes of miners in countries such as Australia and Chile.
However, any prolonged trade disputes or political stoushes could lead to supply shortages and higher costs, which could weigh on profit margins for automakers, battery producers and commodity producers. There is also the potential, as demonstrated with Canadian canola, that retaliatory measures might jump industries and sectors.
While it’s too early to predict the full extent of the fallout, investors should be prepared for increased volatility, particularly if Donald Trump is elected US President (again) and immediately and indiscriminately increases tariffs. Diversifying exposure to both automotive and mineral stocks across multiple regions may help mitigate some of these risks.
Photo by Priscilla Du Preez
