What does chicken have to do with what cars you can buy in America, and how much you pay for them? A lot more than you might think. And with President Trump now threatening new 25% tariffs on all imported automobiles, the industry’s most controversial tax could be applied much more broadly—a move that could reshape the car business as we know it. 

We’re talking chicken on today’s edition of Critical Materials, our morning roundup of tech and industry news. Also on deck: Rivian’s cost-cutting measures seem to be paying off, and a hydrogen and electric truck startup packs it in. 

30%: The Chicken Tax Comes For Everything

Before we get into cars, let’s talk poultry.

Back in the early 1960s, the Europeans accused the U.S. of overproducing and effectively dumping factory-farmed chickens into their markets at uncompetitive prices. The Europeans responded by implementing price controls and retaliatory tariffs on U.S.-grown chickens. Not one to take this lying down, the Lyndon B. Johnson administration hit back with 25% tariffs on a number of imported goods, most notably light trucks. 

This ended up being one of the most consequential decisions in the history of the American auto industry.

For decades, that 25% tariff—the Chicken Tax, as it’s known—has kept nearly all foreign-made light pickup trucks (passenger vans and SUVs are exempt) out of the U.S. market. It’s why Americans can’t buy a Volkswagen Amarok or a Toyota Hilux or one of those wacky little Fiat trucks—or rather, why automakers choose not to import them here. It’s why nearly all U.S.-market trucks, from the Hyundai Santa Cruz all the way up to the giant Ford Super Duty models, are built locally in the U.S. as well. The Chicken Tax would make prices so steep that they’d be uncompetitive to even sell here. 

I’d argue that the Chicken Tax has helped keep America’s automakers more afloat than any bailout ever could. Over time, the tariff policy led General Motors, Ford and the U.S. elements of Stellantis (Ram, Dodge, etc.) to primarily become SUV and pickup truck companies. With no real foreign competition to speak of, they had the truck market to themselves and they turned it into a very lucrative one. All of those companies are largely sustained by truck profits. Hell, Ford doesn’t even sell any small cars or sedans in the U.S. anymore.

If you’re any of the Big Three, the Chicken Tax has been very good to you. If you’re, say, Volkswagen, you don’t have a chance at competing in the U.S. truck market unless you spend billions of dollars in local production to make the trucks Americans want. And how did that work out for the Honda Ridgeline, for one example?

Fast forward to now, and Trump says his April 2 tariffs will include a 25% tax on all imported cars. No one’s explicitly calling this the Chicken Tax 2.0, but that’s essentially what’s happening here. Here’s Politico with more: 

President Donald Trump on Tuesday said he would likely impose tariffs of around 25 percent on foreign auto imports in his latest bid to reshape the U.S. economic relationship with its trading partners.

“I probably will tell you that on April 2, but it’ll be in the neighborhood of 25 percent,” Trump told reporters while signing executive orders at his Mar-a-Lago residence in Florida, adding that car plants are being canceled in other countries like Mexico.

Trump on Friday had said new duties on automobiles were coming as soon as April 2, one day after administration officials are due to deliver reports to the president that could form the legal basis for new tariffs on a range of imports. Keeping up his steady drumbeat of trade threats, Trump also announced that he is planning to impose tariffs of 25 percent or higher on semiconductors and pharmaceuticals.

“It’ll go very substantially higher over a course of a year,” Trump said.

So there are now two ways this can go. One is that this tariff policy is a threat aimed at negotiating some kind of “deal” with auto-exporting countries—Germany, Korea, Japan and so on—and Trump could back off if he gets what he wants. (Or, as this played out in January, is seen to get what he wants.)

But if this is a permanent policy, it represents a wholesale reset of the entire car industry in America. Prices will go up, models could be delayed or canceled entirely and whole brands could bow out. This is just my analysis, but I think it could be a permanent death blow for the Volkswagen brand in particular; most of its cars are imported from elsewhere and it’s already a niche player at best in the U.S. 

Barron’s agrees, with Al Root saying VW would be most exposed here, with Hyundai and Kia right behind; 65% of their cars are imported from Korea. And it wouldn’t exactly be all good for the local players; GM and Stellantis import roughly 45% of the cars they sell in the U.S., especially from Mexico, Canada and Europe in the latter’s case. 

In theory, Trump wants more local car production, more automakers building factories here. But that takes years to set up, billions of dollars in investments. (I’d also add that the Inflation Reduction Act was driving a huge EV manufacturing boom in the U.S., but Trump doesn’t seem too keen on that, either.) 

Anyway, we’ll see how serious the president is on April 2 and beyond. But this is a level of turmoil that could send the auto industry into a major crisis. 

60%: Rivian Expected To Report A Profitable Q4

Photo by: InsideEVs

EV startup Rivian worked hard to cut costs with improvements to its second-generation R1S and R1T models. That may soon pay off when it reports its fourth-quarter 2024 earnings tomorrow, reports Automotive News:

Rivian Automotive is expected to report a positive gross profit as part of fourth-quarter earnings Feb. 20, despite mostly flat deliveries.

The young automaker has been burning through billions of dollars a year since launching its first vehicle in late 2021, but has stood by its early 2024 forecast that revenue will exceed material and labor costs in the final quarter of the year. Rivian implemented an extensive cost-cutting program last year, but also suffered from a major parts shortage that affected electric motor production, the automaker said.

The automaker is building a new assembly line at its Normal, Ill., factory for a midsize crossover, the R2, with a starting price around $45,000. It’s expected to launch next year and help the company scale production and reduce costs.

Rivian still has a long way to go to reach long-term profitability and stability, but things are looking up. 

90%: Nikola Motor Files For Bankruptcy After Years Of A ‘Fall From Grace’

Startup Nikola Corp., formerly Nikola Motors, entered this decade with some big promises. It went public in 2020 with a $26.3 billion market valuation, inking a partnership with General Motors and promising a huge line of electric and hydrogen-powered trucks. There was only one problem: company leadership was basically lying about everything they said they were capable of. Founder and former chairman and CEO  Trevor Milton even went to prison on federal fraud charges. 

The company regrouped after that to try and become a legitimate maker of electric and fuel cell-powered heavy trucks. But that dream has been dashed again as it announces bankruptcy proceedings today. 

Here’s CNBC with more:

Nikola said Wednesday that it plans to pursue an auction and sale process of its assets, pending court approval. The company said it has approximately $47 million in cash to fund its bankruptcy activities, implement the sale process and exit Chapter 11.

“Like other companies in the electric vehicle industry, we have faced various market and macroeconomic factors that have impacted our ability to operate,” Nikola CEO Steve Girsky said in a release. “Unfortunately, our very best efforts have not been enough to overcome these significant challenges, and the Board has determined that Chapter 11 represents the best possible path forward under the circumstances for the Company and its stakeholders.”

The proposed bidding procedures, if approved by the court, would allow interested parties to submit binding offers to acquire Nikola’s assets, purchased free and clear of Nikola’s indebtedness and certain liabilities.

As that story notes, Nikola Motor was once valued more highly than Ford. It’s possible its component parts will live on elsewhere, but Nikola’s dream of becoming the next Tesla is officially over.

100%: What Happens To The EV Sector If These Tariffs Go Through? 

Photo by: Audi

Every automaker would take a hit to their profits here if 25% tariffs became a permanent thing, or at least a long-term one. And with car companies already looking for excuses to back off in the EV race, what happens if they have to endure those costs as well? Who is better positioned to survive these than others? Let us know in the comments.

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