What is the impact of November’s US presidential election on Japanese automakers? Via Investing.com

Investing.com — November’s U.S. presidential election has major implications for Japanese automakers, as the candidates’ policies on climate change, trade and regulation will directly influence the industry.

Analysts at Citi Research explored how the outcome of the election — whether a win for Donald Trump or Kamala Harris — could reshape the environment for these automakers, particularly in terms of electric vehicle (EV) adoption, regulations environment and trade relations.

According to Citi, a Trump victory is likely to lead to a relaxation of federal regulations on greenhouse gases and average fuel economy. Under his administration, California’s Advanced Clean Cars II regulations, which are set to impose much stricter mandates on zero-emission vehicles, could be rolled back.

This would ease the pressure on automakers to quickly switch to electric vehicles, as they would no longer face the future threat of fines for non-compliance.

The financial risk of not meeting these targets would be significantly reduced, providing immediate relief to companies struggling to accelerate ZEV production.

However, while Trump has shown some support for electric vehicles, he has expressed a preference for market-driven outcomes rather than government-imposed targets.

His stance on revoking electric vehicle tax credits under the Inflation Reduction Act could slow the pace of electric vehicle adoption in the US

Without these incentives, the economic case for buying electric vehicles weakens, possibly influencing demand. For Japanese automakers, this presents a mixed scenario.

The pressure to innovate and launch new EV models can ease, allowing them to focus on improving their existing gasoline and hybrid vehicle lines.

At the same time, their long-term competitiveness in the electric vehicle market could suffer if global momentum shifts strongly toward electrification, as expected in regions such as Europe and China.

Trade is another key area of ​​concern. Trump’s protectionist approach is likely to resurface, with an emphasis on imposing tariffs on imports, particularly those from Mexico.

For Japanese automakers like Mazda and Nissan ( OTC: ), which have significant manufacturing facilities in Mexico, this poses a serious risk. They could face higher costs if tariffs are implemented on Mexican-made vehicles, making their products less competitive in the U.S. market.

This would disproportionately affect companies that rely heavily on Mexico for manufacturing and have less manufacturing located in the US. Honda (NYSE: ), with its high levels of local sourcing and U.S. manufacturing, would be better positioned to deal with such trade restrictions.

On the other hand, a Harris victory would maintain the continuity of current climate policies, strengthening the regulatory frameworks that push automakers toward a greener future.

Under Harris, federal regulations on corporate greenhouse gas and average fuel economy would remain strict, and California’s ACCII regulations, which set ZEV sales targets starting in 2026, would be fully enforced.

This would likely create a challenging environment for Japanese automakers, especially those that are behind in the development of electric vehicles. Companies such as Mazda, Subaru (OTC: ) and Nissan, which currently have low ZEV sales, could face substantial financial penalties if they fail to comply with these regulations.

Penalties are high, with potential fines of up to $20,000 per vehicle for non-compliance, a cost that could seriously hurt their bottom line, analysts said.

For automakers with a more advanced EV strategy, such as Toyota (NYSE: ) and Honda, the impact of a Harris administration may be less severe.

These companies are better positioned to meet ZEV sales targets and have already made substantial investments in hybrid and electric vehicles.

Toyota, for example, has long advocated a multi-track approach that includes hybrids and plug-in hybrids, which could prove advantageous as the US struggles to meet ambitious electric vehicle sales targets.

However, even under a Democratic administration, the gap between regulatory targets and actual EV sales is widening.

The battery electric vehicle (BEV) market in the US is still developing, with BEVs currently accounting for only about 8% of the total market.

As regulatory requirements increase, there is a real risk that automakers will not be able to increase production of ZEVs at the pace needed, which could prompt the government to reconsider the severity of the sanctions.

However, Harris’ strong commitment to climate change initiatives and support for California’s autonomy over its environmental policies suggest that relaxing those regulations is unlikely.

Trade policy would also play a major role under a Harris administration, particularly with regard to China.

The current Democratic administration has maintained a strong stance on reducing reliance on Chinese-made components, particularly in the electric vehicle supply chain.

That could lead to new challenges for automakers that depend on Chinese imports for batteries and other electric vehicle parts.

While this does not directly affect Japanese automakers as badly as U.S. automakers, global supply chain constraints could still pose operational challenges.