The Impact of New Auto Tariffs on the U.S. Automotive Industry
On April 1, 2025, President Donald Trump’s administration introduced a significant 25% tariff on imported vehicles. This new policy targets all vehicles that are not assembled in the United States, affecting a substantial portion of the market. According to S&P Global Mobility, imported vehicles made up 46% of nearly 16 million cars sold in the U.S. last year. In addition to the vehicle tariffs, the administration also plans to impose tariffs on certain auto parts, including engines and transmissions, which could be implemented by May 3.
Investors and analysts on Wall Street have expressed concerns that these tariffs could drastically reduce company earnings and potentially push the automotive sector into a recession. Daniel Roeska, an analyst from Bernstein, stated that if the tariffs persist beyond a few weeks, they would likely have a detrimental effect on automakers, significantly impacting their profits. Analyst Itay Michaeli from TD Cowen described the tariff situation as nearly the worst-case scenario compared to previous expectations.
President Trump acknowledged that there may be some initial "pain" resulting from these tariffs, yet he believes they will ultimately create more jobs for Americans and generate over $100 billion in new annual revenue for the U.S. economy.
Lobbying for Tariff Exemptions
Automakers had requested exemptions for vehicles and parts that comply with the United States-Mexico-Canada Agreement (USMCA) to remain tariff-free. However, no such exemptions have been granted for vehicles at this stage. While there may be future allowances for some auto parts, analysts caution that auto stocks could remain unstable in the meantime.
As these tariffs evolve, investors need to stay informed about which companies are susceptible, which vehicles are affected, and the potential impact on earnings.
Understanding U.S. Auto Manufacturing
It is vital to recognize that no vehicle is entirely made in the U.S. Even cars assembled in the country rely on parts sourced from a global supply chain. Wedbush analyst Dan Ives emphasized that the notion of a fully domestically-sourced vehicle is unrealistic and would require years to implement.
For instance, Ford’s F-150 model, which is exclusively assembled in the U.S., is constructed from approximately 2,700 parts, many of which originate from at least 24 different countries.
The tariffs on auto parts will significantly influence automakers’ operations. Components compliant with the USMCA will remain exempt from tariffs initially, but as the Department of Commerce and Customs and Border Protection finalize guidelines, this could change.
Automakers Facing the Brunt
S&P Global Mobility reports that companies like Volvo, Mazda, Volkswagen, and Hyundai are particularly vulnerable, as over 60% of their U.S. sales are based on imports. On the other hand, domestic automakers such as Ford, General Motors, Toyota, and Honda are producers of the highest volume of vehicles in the U.S., accounting for a staggering 67% of passenger light-vehicle production in 2024.
Despite being the largest U.S. vehicle manufacturer, Ford is also expected to be impacted significantly by tariffs, with estimates suggesting that 57% of the value in its U.S.-assembled vehicles comes from imports. Bernstein projects that GM could be the hardest hit among the Detroit automakers, facing an estimated 79% drop in earnings before interest and taxes (EBIT) due to the tariffs.
Effects on U.S. Auto Sales
Auto sales in the first quarter of 2025 exceeded expectations as consumers quickly sought to purchase new vehicles before the tariffs drove prices higher. S&P Global Mobility noted that costs associated with importing vehicles would increase, thereby elevating production costs in the U.S.
If the tariffs persist, light-vehicle sales in the U.S. may decline to between 14.5 million and 15 million annual units in the coming years, a decrease from around 16 million in 2024. Entry-level vehicles, often produced with thin profit margins in countries with lower manufacturing costs, are particularly at risk of being cut or facing price hikes.
For instance, GM imported over 400,000 entry-level crossovers from South Korea last year without tariffs. Other affordable models facing tariffs include popular options like the Toyota RAV4 and Honda CR-V from Canada, as well as Ford and Chevrolet models produced in Mexico.
Financial analysts from Bank of America suggest that the average price of new vehicles, currently around $48,000, could rise by as much as $10,000 due to the tariffs. Automakers have yet to clarify their price increase strategies concerning these new tariffs, leading to uncertainty among consumers.
In light of shifting market dynamics, Hyundai Motor North America’s CEO noted that while they were still evaluating potential price adjustments, it could be wise for customers to consider purchasing vehicles now, before any price changes are implemented.
