Is reshoring actually happening? Here’s what automotive supply manufacturers should know.
- Automotive supply manufacturing businesses are considering reshoring production in the U.S. to avoid tariffs. In some cases, this could help a business protect margins and lower materials or product costs, as well as bolster supply chain resilience.
- However, because American labor costs are so high, reshoring only works when combined with heavy use of automation, which requires a significant upfront investment in equipment and facilities.
- Work with your tax advisor to find out whether new tax incentives like bonus depreciation, qualified production property and expanded Section 179 deductions can make investing in automation-heavy reshoring pay off or if you’re better off continuing to rely on overseas production facilities.
Over the past year, high tariffs have pushed the automotive parts manufacturing industry to consider reshoring production that’s currently done overseas. But while some large OEMs have shifted their supply chains (GM, for example, recently told its suppliers to stop sourcing from China), that hasn’t yet led to a rush of new factories being built on American shores.
This is largely because reshoring is a heavy lift financially due to higher domestic labor costs. However, tax incentives tucked into the One Big Beautiful Bill Act (OBBB) may offer additional flexibility by allowing your business to fully deduct investments in production facilities and automation equipment upfront.
Leaning into these incentives can help make reshoring financially viable and allow your business to take advantage of benefits like a more resilient supply chain, reduced costs and future flexibility. Keep reading to learn more about why some auto parts suppliers are reevaluating where they produce their products and when reshoring can work.
Why are automotive parts manufacturing businesses considering reshoring?
It’s a challenging financial moment for auto parts suppliers. Tariffs, high labor costs and rising prices for materials have left suppliers navigating shrinking margins — just as consumers are increasingly hesitant to buy new vehicles. Here’s what the industry is currently facing:
- Tariffs: A massive spike in tariff rates beginning in April 2025 has complicated supply chains and left U.S.-based manufacturers paying double or more for certain goods imported from overseas. While some of these costs can be passed on to consumers, manufacturers are often wary of risking a backlash by raising prices too quickly.
- Labor challenges: Post-pandemic wage increases have driven up the cost of labor, putting additional pressure on employers. However, higher labor costs have done little to solve chronic labor shortages, leaving manufacturers caught between a rock and a hard place.
- Materials costs: Driven both by tariffs and increased demand for tariff-free domestically sourced options, materials costs are rising. This increase is eating into profitability, affecting already strained margins.
- Falling consumer demand: New vehicles cost more than ever, with the average new vehicle payment up nearly 40% since 2018. Due to concerns over affordability, consumer demand has dropped roughly 5.7% from a pre-COVID peak of 17.5 million units a year, slowing the market slightly for both OEMs and Tier 1, 2 and 3 suppliers.
Reshoring can’t solve labor and consumer demand challenges, but under certain circumstances, it can help your business avoid tariffs and lower materials costs. However, making the math work often comes down to finding the right combination of tax incentives.
Tax strategy can help auto parts suppliers survive tariffs and other cost challenges
Think of reshoring in part as a tax strategy. Your success may depend on whether you can avoid enough tariffs and stack enough tax incentives to make up for the financial hit you’ll take from building new facilities or taking on U.S.-based labor costs.
Automation is key here. Because American labor costs are so much higher than those overseas, any reshored U.S. production will likely need to lean heavily on automation to make financial sense. But automation equipment is expensive.
Enter new tax incentives. Post-OBBB, there are now additional tax incentives that can make investing in U.S.-based automation equipment a little friendlier to your bottom line than it was before. Here are the three big ones you should know:
1. 100% bonus depreciation
Bonus deprecation is a tax provision that allows you to deduct 100% of the cost of certain qualified business property like manufacturing equipment. This deduction applies to the same tax year you purchase the property, allowing you to write off expenses upfront rather than over a standard 39-year depreciation schedule.
2. Qualified production property
Qualified production property is essentially an expanded version of bonus depreciation that applies to certain real property used in qualified manufacturing activities. This deduction allows you to fully expense parts of a manufacturing building that are integral to substantially transforming a qualified product via manufacturing, production or refining. Like bonus depreciation, this deduction can be taken right away.
3. Expanded Section 179 deduction
Section 179 allows businesses to fully deduct up to $2.5 million in certain qualifying assets like machinery, equipment or software under certain circumstances. This deduction can also be combined with bonus depreciation, allowing a business to use Section 179 to deduct a certain amount of a large purchase and expensing the rest via bonus depreciation.
Does reshoring make sense for your business?
If your automotive business is suffering from tariffs, reduced volumes and shrinking profitability, talk to your tax advisor. Too many manufacturers are not taking advantage of new tax incentives that can help mitigate financial pain, or exploring options like reshoring (or nearshoring) that can strengthen your business under the right circumstances.
With your tax advisor, discuss your specific business problems and consider how relevant tax incentives could apply. If the right tax strategy could help you successfully invest in automation-heavy U.S.-based manufacturing capabilities, then reshoring may help you reduce your tariff burden and become more profitable.
Reshoring benefits can include reduced costs, greater efficiency and a more resilient supply chain
In the right situation, reshoring can deliver meaningful financial benefits for your business. When done in combination with modern automation technology, reshoring your manufacturing capacity can actually lower your overall costs by making your production process significantly more efficient.
Reshoring can also make your supply chain more resilient. You’ll be less vulnerable to the industry’s chronic labor shortages or trade disruptions. Planning your reshoring strategy can also be a chance to further reduce risk by diversifying suppliers and making your sourcing more flexible (perhaps by negotiating less rigid contracts with suppliers).
You can also benefit financially from using reshoring as an opportunity to improve your inventory and cash flow management to give yourself greater financial flexibility and increase profitability.
How to get started
Reshoring is not a one-size-fits-all scenario, as the up-or-down verdict depends on how your business works, what your supply chain looks like and whether you can automate enough of your domestic production to make the math work out. Talk the whole scenario through with your tax or business advisor. Because there are so many moving parts here, be sure your advisor understands both tax strategy and the automotive business, including the unique challenges that parts suppliers face.
How Wipfli can help
We advise auto parts suppliers on tax strategy, improving business performance and growth. Let’s talk about your goals and how we can help you achieve them. Start a conversation.
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