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Vehicles on display in front of a Ford dealership in Montebello, California, on April 1, 2025.
DETROIT — The implementation of President Donald Trump’s 25% tariffs on imported vehicles to the United States has officially commenced, although the repercussions on the automotive sector and investor sentiments are anticipated to unfold over the coming months or even years.
The tariffs apply to any vehicle not manufactured within the U.S., which encompasses approximately 46% of the 16 million vehicles sold domestically last year, according to S&P Global Mobility. The industry is particularly keen on understanding the implications of potential tariffs on specific auto parts like engines and transmissions.
Investor sentiments on Wall Street regarding the tariffs have been negative, with many analysts warning that the new levies could severely impact company profits and contribute to a downturn in the automotive sector.
“If the 25% tariff on automotive imports persists beyond a few weeks, it could significantly dampen the industry as automakers confront serious challenges to their profitability,” stated Bernstein analyst Daniel Roeska in a recent report to investors.
Furthermore, TD Cowen’s Itay Michaeli characterized the tariff situation as “nearly the worst-case scenario compared to earlier forecasts,” while Barclays’ Dan Levy emphasized that there are “no absolute ‘winners,’ only those who fare relatively better.”
Despite acknowledging the potential for initial “pain,” Trump, however, maintains that these tariffs will ultimately enhance American employment levels and generate over $100 billion in annual revenue for the country.
Automakers have been advocating for exemption from tariffs on vehicles and parts that comply with Trump’s United States-Mexico-Canada Agreement (USMCA), but exemptions for vehicles have not yet materialized.
There may be some exceptions for specific auto parts that are still under review, but analysts on Wall Street caution that automotive stocks will likely continue to experience volatility.
As the effects of the tariffs unfold, investors must remain informed about which companies are most susceptible to impacts, what vehicles will be affected, and the anticipated effects on their earnings.
Understanding Domestic Production vs. Sourcing
The reality is that no vehicle comprises entirely domestic content.
Even those vehicles that are assembled in the U.S. rely on a global supply chain for thousands of components.
Wedbush analyst Dan Ives remarked that the notion of a car manufacturer utilizing exclusively U.S. sourced parts is a myth that cannot be realized in the near term, stating it would take years to make this a reality.
Ultimately, the effective implementation of tariffs on auto parts will be crucial, potentially offering relief to automakers, depending on their supply chain configurations.
Components currently compliant with the USMCA will be exempt from tariffs until regulations are established by the Secretary of Commerce and Customs and Border Protection regarding non-U.S. content.
Moreover, automakers operating under the USMCA could see U.S. content provide a reduction in tariff calculations, as per White House statements.
Companies Facing Major Exposure
According to S&P Global Mobility, companies such as Volvo, Mazda, Volkswagen, and Hyundai Motor—including its Genesis and Kia brands—are particularly vulnerable, given that at least 60% of their U.S. sales in 2024 were imported.
Conversely, Ford, General Motors, Toyota, Honda, and Stellantis have produced the majority of vehicles sold in the U.S. market, representing 67% of total U.S. passenger light-vehicle production last year, as noted by S&P Global Mobility.
However, Bernstein estimates that 57% of the value in U.S.-assembled vehicles is sourced from abroad, suggesting that even Ford, the leading producer in the U.S., will face substantial effects from the tariffs.
Within the Big Three automakers in Detroit, GM is projected to be the most exposed to these tariffs due to an over 80% share of its revenue derived from North America, a 48% import rate for vehicles, and a low share of U.S. parts content in its domestic builds.
According to Bernstein’s calculations, GM’s earnings before interest and taxes (EBIT) could plummet by 79% due to the tariffs, alongside an 81% decline in earnings per share (EPS) and a $4.1 billion reduction in free cash flow.
In contrast, Bernstein forecasts Ford could experience a 16.5% decline in EBIT, a 23% drop in EPS, and a 36% reduction in free cash flow.
Stellantis is expected to be the least impacted, with only 40% of its global revenue tied to the U.S. market, resulting in an approximate $1 billion hit to EBIT, an 8.75% reduction in net income, and around $540 million less in free cash flow.
Excluding the potential tariffs on parts, U.S. electric vehicle leaders Tesla, along with startups Rivian Automotive and Lucid Group, are well-positioned, as all their U.S. vehicles are assembled domestically.
“Tesla stands out as the primary beneficiary of this situation—local manufacturing, strong market position, and reduced exposure to international trade risks. For others, this marks a reset in profit margins and a substantive obstacle to near-term earnings,” noted Bernstein’s Roeska.
Trends in U.S. Auto Sales
U.S. auto sales in the first quarter exceeded expectations, as consumers rushed to purchase new vehicles before the tariffs commenced, anticipating rises in prices.
“With the additional costs incurred through increased vehicle importation and production in the U.S., consumer prices for vehicles are set to escalate,” stated S&P Global Mobility in a recent tariff report.
S&P forecasts that light-vehicle sales in the U.S. could decrease to between 14.5 million and 15 million units annually in the coming years, contingent on the continuation of the tariffs, down from the approximately 16 million vehicles sold in 2024.
Entry-level, more affordable vehicles are particularly vulnerable to price hikes, as these models tend to have slim profit margins and are often produced in countries with lower manufacturing costs.
For instance, GM imported over 400,000 affordable crossovers for its Buick and Chevrolet brands in the previous year, and it had relied on these vehicles to drive growth within its lower-margin segment.
Other vehicles likely to face tariffs include affordable options such as the Toyota RAV4 and Honda CR-V from Canada, along with the Ford Maverick, the Ford Bronco Sport, and the Chevrolet Equinox from Mexico.
Bank of America estimates that average new vehicle prices, currently approximately $48,000, could increase by as much as $10,000 if manufacturers choose to fully pass the tariff costs onto consumers.
Automakers have largely refrained from announcing how much vehicle prices may rise due to the tariffs, alongside additional charges on components like aluminum and steel.
“We are continuously assessing all possible scenarios,” remarked Hyundai Motor North America CEO Randy Parker regarding potential price adjustments. “What I can convey to our customers is that now is an excellent time to consider purchasing a vehicle, as we have not yet implemented any price increases.”
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