Protecting Margins in Volatile Raw Material Market for NA Auto OEMs
TL/DR –
North American automotive Original Equipment Manufacturers (OEMs) are facing increased cost pressure due to raw material volatility triggered by electrification, regionalization, and regulation. The dependence on commodity-linked components like battery materials and low-carbon metals has exposed these companies to price swings caused by trade policies, regional supply constraints, and decarbonization mandates. To safeguard their margins and drive growth, OEMs need clear visibility into their supply chains, data-driven procurement strategies, and strong negotiation leverage.
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North American OEMs Grapple with Raw Material Volatility
Original equipment manufacturers (OEMs) in North America confront profound cost pressures today, with raw material volatility being the primary concern. The localization of supply chains due to the USMCA, the Inflation Reduction Act (IRA), and reshoring only heightens the risk of rising material prices.
Electrification is quickening this risk as it increases reliance on battery materials, low-carbon metals, and energy-intensive inputs. These add layers of complexity and uncertainty. Therefore, OEMs now need greater visibility, smarter forecasting, and stronger negotiation tactics to protect their margins and fuel future growth.
How Raw Material Volatility Impacts Automotive Margins
The pivot toward electrification increases dependence on commodity-linked components like battery materials and low-carbon metals. The exposure to price fluctuations is aggravated by trade policies, new decarbonization mandates, and regional supply constraints.
As an example, steel and aluminum prices are now heavily influenced by the IRA requirements and supply chain restrictions, which result in fragmented pricing across regions. While the Carbon Border Adjustment Mechanism (CBAM) does not directly raise input costs for most US auto manufacturers, it does indirectly affect global trade flows and carbon-linked pricing, leading to longer-term impacts on cost structures.
The Reshoring Dilemma
Reshoring is often perceived as a solution to global supply chain issues. However, it also presents new challenges and doesn’t completely insulate OEMs from volatility. While domestic sourcing can help mitigate logistics problems, it brings about regional price premiums, supply scarcities, and increased vulnerability to local policy changes. Rapidly shifting tariff and trade landscapes can swiftly nullify any intended stability.
To effectively manage risk and safeguard margins, OEMs should strive for a balance between domestic sourcing mandates and the utilization of dynamic regional benchmarking and predictive tools that inform strategic decisions.
Identifying the Key Pain Points for North American Manufacturers
Steel
Regional price spreads on steel are expanding, driven by import tariffs that enhance domestic pricing power, leading to an expected 4-5% increase in shipments this year. Despite increased domestic steelmaking capacity, demand for domestic steel is rising at a faster pace. This is evident as General Motors is onshoring its Buick Envision from China, and Ford and Stellantis are making significant investments to expand US domestic automaking production.
Steelmakers are also dealing with increasing material and labor costs, which they pass on to customers. As the market shifts towards long-term contracts, companies need independent benchmarks to maintain leverage during negotiations.
Aluminium
Aluminium, particularly low-carbon varieties, is associated with complex regional premiums. The USMCA currently mandates that at least 70% of the aluminium content of automotive parts must originate from the US, Canada, and Mexico to be considered a North American product under the agreement’s rules of origin.
Battery Materials (lithium, nickel, graphite, manganese, cobalt)
The rapid growth of electric vehicles (EVs) emphasizes the need for a stable battery material supply, especially with key materials, such as lithium, nickel, and cobalt, experiencing price swings due to global demand and supply chain bottlenecks.
Strategies for Automotive OEMs to Protect Margins Using Data
Leveraging Independent Benchmarks for Negotiation
Data is critical in the negotiation of contracts for auto-grade steel, aluminium, or battery materials. Independent benchmarks, providing both real-time and historical pricing, facilitate fact-based discussions and help avoid getting locked into unfavorable, opaque cost-plus models.
Utilizing 12–24-Month Forecasts for Smarter Planning
Forward-looking forecasts can allow manufacturers to fold material cost trends directly into their sourcing, contracting, and new model budgets. Predictive analytics offer a better understanding of upcoming price cycles and cost-driving forces, aiding teams to plan more accurately and prevent surprises.
Building Resilience Against Automotive Volatility
Fastmarkets partners with major US automotive manufacturers and suppliers to aid in navigating the increasing volatility stemming from electrification, innovation, and regulation. Maintaining competitiveness now hinges on managing raw material risk with speed and precision.
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