Here's What Rivian's CEO Just Said About Trump's Tariffs

American automakers are reeling after President Donald Trump imposed a 25% tariff on vehicles and parts imported from Mexico and Canada. The high tariffs mean the prices on millions of vehicles sold in the U.S. could increase.

Making matters worse is that Trump's trade war with China has escalated to the point where China is now restricting the export of rare-earth minerals to the U.S. These materials are used for a wide range of high-tech applications, including batteries and magnets for electric vehicles (EVs).

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Recently, Rivian Automotive (NASDAQ: RIVN) CEO RJ Scaringe highlighted these difficulties in an interview with Fox Business. Here's what he said about Trump's tariffs and their impact on the EV industry.

Image source: Rivian.

1. It's nearly impossible to source parts only from the U.S.

Rivian currently makes three vehicles: the R1T pickup truck, its R1S SUV, and a commercial electric van. All of the vehicles are manufactured in the U.S. at the company's plant in Normal, Illinois. As such, Scaringe said Rivian has a "very U.S.-centric supply chain" but it also sources some parts from outside the country: "One of the things with automotive is the supply chain is so complex, where we have hundreds of suppliers providing parts from, say, a headlight or a tow hook or tires or the structure under the skin here that are coming from not only a set of suppliers that supply to us, but those suppliers have suppliers, and then in turn, those suppliers have suppliers, so there's tier two, tier three."

That's where Trump's 25% tariffs on auto imports make things difficult for Rivian, even though many of its parts and all of its production are U.S.-based. The company sources some of its parts from Mexico, which are subject to those high tariffs.

Scaringe noted that it's trying to shift some sourcing to domestic vendors, but making the change is difficult.

While Scaringe didn't say that Rivian will raise prices, many companies that are exposed to Trump's tariffs have floated the idea. The cheapest Rivian truck starts at just under $70,000, and prices only go up from there. This makes it difficult for Rivian to significantly raise costs without excluding many potential buyers, which could eventually put pressure on the company's vehicle sales.

2. China's restriction on rare-earth materials could hurt EV makers

Perhaps more troubling for Rivian is that China recently said it's restricting exports of rare earth materials to the U.S. in response to Trump's 145% tariff on Chinese imports. Some rare-earth materials are used to make magnets that are used in EV motors and batteries.

Batteries are the most expensive part of any electric vehicle, accounting for up to 40% of an EV's price. Battery costs have been falling for years and were estimated to drop 50% between 2023 and 2026, according to Goldman Sachs.

But China's recent moves could reverse the trend. Scaringe noted, "The trade restrictions and what we're seeing in terms of rare earth metals out of China, that's a real challenge for electric vehicles."

He said essentially every electric vehicle on the road is using a permanent magnet that contains some rare-earth minerals, and that "the processing of the materials, that happens almost exclusively in China."

If the trade war persists and China keeps restrictions on exporting these materials, it's safe to assume battery and EV motor costs could rise, production could slow down, or both. While there are still a lot of unknowns, the EV industry clearly isn't on the same path it was just a few months ago.

A difficult road ahead if inflation rises again

I still believe in the long-term potential of EVs, but as a Rivian shareholder, I'm concerned about the company's immediate future. We'll likely get some more insights on how the company is navigating tariffs and China exports when Rivian announces its first-quarter results next month, but Scaringe's recent comments indicate there's a lot of uncertainty ahead.

I think it's important to mention, too, that if Trump's tariffs cause inflation to increase and an economic slowdown or recession to occur, it could have significant negative implications for EVs. Scaringe said as much himself in a separate interview a couple of months ago, saying, "The inflation environment that that's going to create is, just from an economic standpoint, we believe could be really damaging."

While some of the Trump administration's most intense initial tariffs were reduced to 10% across most countries, uncertainty is very high right now. Consider that more than 60% of American CEOs expect a slowdown or recession in the next six months, according to a survey done earlier this month and released this week by Chief Executive.

If that happens, it'll add insult to injury for automakers. All of which means that investors should pay close attention to Scaringe's comments when Rivian reports its quarterly results next month -- and temper expectations for Rivian's short-term growth.

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Chris Neiger has positions in Rivian Automotive. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.