In a bold move with far-reaching consequences, former President Donald Trump announced a 25% tariff on auto imports, sending shockwaves through the automotive industry. The tariffs, set to take effect on April 3, are expected to significantly raise production costs for major automakers, forcing them to increase vehicle prices. This comes at a time when consumers are already grappling with near-record-high car prices and mounting inflation worries.
Automakers Bear the Brunt
Shares of leading automakers tumbled following the announcement, with General Motors (GM) taking the hardest hit. The Detroit-based company’s stock plummeted 8.2%, as analysts at JPMorgan warned that GM could be the most vulnerable to the tariffs. Roughly 40% of the vehicles it sells in the U.S. are sourced from Mexico and Canada, making it highly exposed to cross-border production costs.
Ford Motor Company, though less reliant on imports, still saw its shares slip by 4.2%. With under 10% of its vehicles sourced outside the U.S., Ford is expected to weather the storm better than GM. Stellantis, which has a significant North American manufacturing footprint but is headquartered in the Netherlands, fell by 2.5%.
Japanese automakers were also caught in the sell-off. Honda’s U.S.-listed shares dropped 2.7%, while Toyota’s fell 2.4%. The tariffs could drive up the cost of imported parts, making it more expensive to assemble vehicles in the U.S.
Tesla Emerges as the Winner
In stark contrast, Tesla saw its stock price surge by more than 5%, making it the only major automaker to benefit from the announcement. The electric vehicle maker produces all of the cars it sells in the U.S. domestically, insulating it from the impact of the tariffs. With no reliance on imported vehicles, Tesla is positioned to gain a competitive advantage as its rivals grapple with higher costs.
Auto Parts Suppliers Also Take a Hit
The tariffs’ ripple effects extended to auto parts suppliers, which also saw their stocks slide. Autoliv fell 3.7%, Aptiv dropped 5.6%, and Gentex slipped 1.7%. With many auto parts crossing international borders multiple times during the production process, the new tariffs will add layers of costs to the supply chain.
Consumers Face Higher Prices
The tariffs are expected to drive up vehicle prices, further burdening consumers. With inflation still a major concern, higher car prices could exacerbate financial strain on American households. New vehicle prices are already hovering near all-time highs, and analysts predict that automakers will pass the added costs on to buyers.
“There are still a lot of unknowns, but if this remains in place, there will clearly be some pain for the companies to digest,” said Joseph Spak, an analyst at UBS, in a note to investors.
Inflation Pressures and Economic Concerns
Beyond the auto sector, the tariffs could contribute to broader inflationary pressures. Higher car prices may increase overall inflation, making it more difficult for the Federal Reserve to achieve its goal of bringing inflation under control. Consumers, who are already wary of rising costs, could become more hesitant to spend, potentially slowing economic growth.
Automakers Scramble to Adapt
Many automakers have been bracing for the tariffs since Trump floated the idea earlier in the year. Companies like GM stockpiled inventory in the U.S. ahead of the announcement, hoping to mitigate some of the financial impact. However, the long-term effects could be harder to avoid, as supply chains and production costs are inextricably linked to cross-border trade.
