Tariff Impact on Connected Car Industry

Hidden Costs. Shrinking Margins. It’s Time for a Tariff Strategy

The global connected car market is projected to grow from USD 12.4 billion in 2024 to USD 26.4 billion by 2030, at a compound annual growth rate (CAGR) of 13.3%. Newly announced US tariffs on imported automotive components, including advanced electronics and telematics systems, are expected to increase production costs and impact market growth. This growth is driven by increasing consumer demand for constant connectivity, advancements in automotive technology such as 5G networks and AI-powered features, and supportive government regulations mandating vehicle-to-vehicle communication technologies.

Request Tariff Threat Assessment Analysis Now : https://www.marketsandmarkets.com/forms/ctaTariffImpact.asp?id=102580117

Economic Impact: Rising Costs and Market Adjustments

1. Increased Production Costs

• Tariffs on imported components, such as semiconductors, sensors, and software modules, significantly raise production costs for manufacturers.
• The connected car market, which depends heavily on advanced technologies like AI, V2X communication, and autonomous driving systems, faces higher costs due to tariffs on critical raw materials and components.
• Manufacturers reliant on imports experience up to a 20% increase in component costs.

2. Higher Consumer Prices

• As production costs rise, retail prices for connected cars are likely to increase, which may impact adoption rates, particularly in price-sensitive markets like the US. Cost-effective solutions remain a key driver of connected car growth.

3. Reduced Profit Margins

• OEMs and Tier-1 suppliers face shrinking margins as they absorb tariff-related cost increases while maintaining competitive pricing and keeping up with technological advancements.

4. Impact on Investments

• Tariffs reduce foreign investments in the US connected car market, especially from tech-driven companies in Asia that dominate global production of connected car components.
• Concerns over data privacy and cybersecurity are rising, restricting market growth potential as they add additional costs to connected car solutions.

Geographical Impact: Shifting Market Dynamics

United States: Tariff Impacts and Market Reshaping

• US tariffs encourage local production but create short-term disruptions as manufacturers reconfigure supply chains and reassess their component sourcing strategies.
• The US connected car market, projected to reach USD 46 billion by 2032, may experience slower growth due to higher production costs and limited competition from global players.

Asia-Pacific: Opportunities and Challenges

• Chinese manufacturers face restricted access to the US market, prompting them to explore alternative regions, particularly Southeast Asia and Europe.
• South Korea and Japan continue to dominate connected car software and hardware markets, benefiting from tariff-induced shifts and strengthening their position in the global market.

Europe: Trade Agreements and Competitive Pressures

• European automakers like Volkswagen, BMW, and Mercedes-Benz are impacted by higher tariffs on exports to the US, pushing them to deepen intra-regional trade and partnerships within Europe.
• The integration of 5G and autonomous driving features is expected to drive growth in the European connected car market as the region focuses on enhancing in-vehicle technology.

Emerging Markets: Opportunities for Growth

• Southeast Asia is becoming a hub for manufacturing connected car components, with favorable trade agreements and incentives attracting investments.
• Latin America, with its proximity to the US, emerges as a key manufacturing region for connected car technology under agreements like the USMCA.

Business Impact: Supply Chain Disruptions and Strategic Shifts

1. Supply Chain Disruption

• Tariffs disrupt global supply chains by increasing costs for imported components essential for connected car systems, such as telematics modules and communication chips.
• Companies are diversifying suppliers or shifting production to alternative regions like Southeast Asia to mitigate the impact of tariffs.

2. Competitive Dynamics

• Domestic manufacturers gain a temporary edge as tariffs make foreign-made connected cars less competitive, but face challenges if cost increases lead to decreased demand from price-sensitive consumers.
• Legacy automakers benefit from slower adoption of connected car technologies in the US but must navigate the shift toward more advanced in-car systems and data-driven services.

3. Strategic Shifts by OEMs

• Companies like Tesla and Ford are investing in new facilities outside of tariff-impacted regions (e.g., Mexico, India) to circumvent tariff costs and tap into new markets.
• The rise of modular vehicle platforms allows OEMs to streamline production, reduce costs, and introduce new connected car models at competitive prices.

4. Infrastructure Expansion

• The need for enhanced in-vehicle connectivity and V2X communication infrastructure is accelerating, as governments and businesses focus on developing connected car ecosystems and smart cities.
• Local governments are prioritizing homegrown solutions for in-car software and hardware to mitigate tariff-induced costs, driving market growth for connected infrastructure.

Key Strategies for B2B Stakeholders: Proactive Adaptation

1. Local Manufacturing Investments

• OEMs prioritize setting up production facilities in tariff-free regions or countries offering favorable trade incentives to mitigate cost increases.

2. Supply Chain Diversification

• Businesses diversify their supplier base by identifying alternative sourcing regions like Southeast Asia and Latin America, which are less affected by tariffs, to maintain cost competitiveness.

3. Leveraging Trade Agreements

• Companies explore opportunities under trade agreements like USMCA or partnerships with emerging markets like India to streamline production and distribution of connected car technologies.

4. Innovation Focus

• Investment in innovative technologies, such as 5G connectivity, AI-powered autonomous systems, and enhanced cybersecurity measures, helps offset tariff-related costs while maintaining competitive edge.
• Focus on vehicle-to-everything (V2X) communication and data security advancements ensures connected cars are future-proof and meet evolving regulatory requirements.

Adapting to Tariff-Induced Market Shifts

The newly announced US tariffs create both challenges and opportunities for stakeholders across the connected car value chain. Domestic manufacturers may temporarily benefit from reduced foreign competition, but they must strategically invest in local manufacturing capabilities, supply chain diversification, and cutting-edge technologies for sustained growth. Geographies such as Southeast Asia, India, and Latin America emerge as potential winners as they offer tariff-free production zones and access to new markets. As tariff pressures continue to evolve, the industry’s ability to adapt and innovate will determine its long-term success in a highly competitive global landscape. Furthermore, expanding and improving connected car infrastructure, like V2X communication networks, will be essential to maintaining momentum despite the tariff uncertainties.

Related Reports:

Connected Car Market by Service ICE & EV (OTA, Navigation, Multimedia Streaming, Social Media, eCall, Autopilot, Remote Diagnostics, Home Integration), Market (OEM, Aftermarket), Network, Form, Transponder, Hardware and Region - Global Forecast to 2030

Contact:
Mr. Rohan Salgarkar
MarketsandMarkets™ INC.
1615 South Congress Ave.
Suite 103, Delray Beach, FL 33445
USA : 1-888-600-6441
sales@marketsandmarkets.com