Honda has struck a significant deal with its long-time rival, Toyota, to secure a steady supply of hybrid batteries, a move that underscores the escalating impact of U.S. trade policies. As reported by Japanese daily Nikkei, the partnership aims to mitigate the risks posed by burgeoning tariffs on imported components originating from China and Japan. The agreement will see Honda procure 400,000 hybrid battery packs annually from Toyota’s newly established $14 billion battery manufacturing plant in North Carolina, commencing in April 2025.

The deal signifies a remarkable shift in the competitive landscape of the automotive industry. For decades, Honda and Toyota have engaged in fierce competition, particularly in the hybrid vehicle market. However, the implementation of new tariffs by the Trump administration, including a 10% levy on Chinese imports and a projected increase in tariffs on Japanese-built vehicles from 2.5% to 25%, has compelled Honda to reassess its supply chain strategy. Rather than absorbing the increased costs or passing them on to consumers, the company has opted to secure a tariff-free supply of crucial battery components from its rival.

This collaboration presents a mutually beneficial scenario for both automakers. Honda, which sold over 308,000 hybrid vehicles in the U.S. last year and is planning to expand its hybrid lineup, requires a reliable and tariff-exempt battery source to maintain its production momentum.

Toyota, on the other hand, gains a substantial customer for its expansive North Carolina battery plant, thereby bolstering the facility's operational viability and justifying its massive investment. This arrangement also reflects a broader trend among Japanese automakers to reduce their reliance on Chinese suppliers and prioritize domestic or U.S.-based production.

While the specific Honda models slated to utilize Toyota’s batteries remain undisclosed, the popular CR-V Hybrid is considered a prime candidate. It is crucial to note that this is a purchasing agreement, and not a traditional alliance, as Honda is simply buying batteries from Toyota without a reciprocal agreement in place. Toyota’s sprawling seven-million-square-foot North Carolina plant will serve as a critical supplier not only for its own hybrid and electric vehicle models but also for its competitor.

Honda and Toyota are not alone in their efforts to adapt to the evolving trade landscape. Volkswagen and Porsche are exploring U.S.-based production to circumvent import duties, while Volvo has postponed the launch of its EX30 model to avoid a 100% tariff on Chinese-made electric vehicles. Domestically, automakers like GM and Stellantis have already cut production at their plants in Canada and Mexico, anticipating the impact of potential tariffs.