Auto industry faces chip shortages, policy shifts

Computer chip shortage slows down production

Legal disputes are disrupting one of the automotive industry’s main chip suppliers, Nexperia and leading to production delays and shutdowns at several major automakers. Further plant shutdowns are already planned for 2026.

Chips are foundational to many automotive systems including door handles, steering, braking and infotainment systems. The absence of a single chip can halt production. The Nexperia conflict hinges on wafers, the silicon base for computer chips, that Nexperia China is no longer receiving from its Dutch parent company. While it operates with a significant wafer shortage, Nexperia China is working to find alternative suppliers domestically in the next six to nine months.

U.S. trade restrictions on specific Chinese companies have further complicated the situation. The ripple effect is slowing down North American auto suppliers’ production and affecting their financial outlook.

Disruptions seem likely well into 2026. Advanced solutions such as item-level visibility and AI-based automation can help make complex automotive supply chains more agile and resistant to global upheaval.

Lower fuel efficiency standard proposed for new cars sold in the United States

The U.S. administration has proposed lowering the fuel efficiency standard for new vehicles to 34.5 miles per gallon by the 2031 model year, down from the current 50 miles per gallon. The proposal is part of an overarching effort to roll back climate-related and environmental regulations seen as a burden for certain industries, including automotive production.

The proposal creates more uncertainty for the automotive industry, which is already heavily plagued with production challenges this year. Supply chain efficiency continues to be a critical factor in mitigating cost increases. Further uncertainty comes from ongoing litigation about the new standard, which has been challenged by a coalition of states led by California as well as environmental groups.

Suppliers should prepare for a potential shift in OEM priorities, with less emphasis on lightweight materials and electrification and more focus on cost optimisation and traditional powertrain components. This could mean rebalancing production capacity, renegotiating contracts and investing in flexible supply chains to adapt quickly if regulatory changes alter demand for electric vehicle parts and advanced fuel-saving technologies.

Newly imposed Mexico tariffs hit auto parts made in China

On 1 January, Mexico’s new 25-50% tariff on cars and auto parts from China and other countries without free trade agreements went into effect. Imports from India, South Korea and Indonesia are among those covered. Most will see a 35% tariff, but imports from China face the maximum rate of 50%.

The move is part of a broader round of tariffs intended to protect Mexican jobs, boost local industry and reduce dependence on China. It also aligns Mexico more closely with the United States ahead of the upcoming review of the U.S.-Mexico-Canada Free Trade Agreement (USMCA) and strengthens its position as a global nearshoring partner.

USMCA renegotiation may reshape automotive trade landscape

This year will see a full review of the USMCA agreement. Changes to the trade deal between the three countries may have important impacts for their deeply intertwined automotive sectors. For more details, go to the Trade Policy & Customs section of this report.

Further tariff updates

Canada steel tariffs

Canada imposed a 50% surtax on certain steel imports from countries with which it hasn't got free trade agreements effective 26 December 2025. The measure specifically targets Chinese overproduction.

U.S. Supreme Court tariff decision

A ruling on whether the U.S. administration can levy tariffs under the International Emergency Economic Powers Act (IEEPA) is now expected this month, possibly as early as Friday, 9 January, when the Court issues its first round of rulings for the new year. If overturned, importers may receive refunds, though expectations for a quick refund process are low.

For more details, go to the Trade Policy & Customs section of this report.

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