President Donald Trump’s 25% tariffs on imported vehicles to the U.S. took effect on Thursday. The new tariffs are expected to bring volatility to automaker and supplier stocks in the short term. Analysts predict substantial turbulence as companies adjust to the increased costs.
Imported vehicles made up 46% of the 16 million vehicles sold in the U.S. last year. The auto industry is keenly awaiting further details on potential tariffs for specific auto parts such as engines and transmissions. Wall Street analysts have expressed concerns about the tariffs.
Bernstein analyst Daniel Roeska noted that a prolonged 25% tariff could significantly affect the sector’s bottom line. TD Cowen’s Itay Michaeli described the tariffs as “close to the worst-case outcome.”
President Trump believes the tariffs will ultimately create more American jobs and generate over $100 billion in new annual revenue for the U.S. Automakers have been lobbying for exemptions on vehicles and parts compliant with the United States-Mexico-Canada Agreement (USMCA), but no such exemptions have been granted yet. A significant portion of vehicles assembled in the U.S. still rely on a global supply chain for parts.
Wedbush analyst Dan Ives pointed out that the concept of a completely U.S.-sourced vehicle is not currently feasible. The rollout of tariffs specific to auto parts may offer some relief depending on each automaker’s supply chain network.
Tariffs disrupt auto industry stability
Parts that are currently tariff-free will remain so until the secretary of commerce and Customs and Border Protection establish procedures to impose levies on non-U.S. content. Companies like Volvo, Mazda, and Hyundai are at greatest risk, as over 60% of their U.S. sales were imported in 2024. Domestic manufacturers like General Motors and Stellantis face significant impacts due to the high percentage of imported parts in their vehicles.
Bernstein estimates that General Motors could see its earnings before interest and taxes (EBIT) drop by 79%, an 81% decline in earnings per share, and a $4.1 billion reduction in free cash flow. Ford could experience a 16.5% hit to EBIT, a 23% decline in EPS, and a 36% drop in free cash flow. The tariffs are less likely to impact U.S.-based electric vehicle manufacturers like Tesla, as all of their vehicles sold in the U.S. are assembled domestically.
Bernstein’s Roeska stated that Tesla is the “clear structural winner” in this scenario. U.S. auto sales in the first quarter were robust as consumers rushed to buy new vehicles before the tariffs took effect. U.S. light-vehicle sales could drop to between 14.5 million and 15 million units annually if the tariffs remain in place, compared to 16 million units sold in 2024.
As the effects of these tariffs continue to unfold, investors and industry stakeholders will need to monitor which companies are most at risk, which vehicles will be impacted, and how earnings will be affected. The automotive sector faces a period of significant adjustment, with the potential for long-term shifts depending on how policies and markets react.
