US President Donald Trump has announced new import tariffs of 25% on cars and car parts, a move that threatens to escalate global trade tensions.
The tariffs will take effect on April 2 for vehicle imports, with levies on parts expected to follow in May or later.
Trump defended the decision, arguing that it would stimulate the US auto industry by creating jobs and attracting investment.
However, analysts warn that the policy could backfire by disrupting global supply chains, increasing vehicle prices, and straining relations with key allies, including Japan, South Korea, Germany, and Mexico.
The tariffs are also expected to drive up the cost of vehicles sold in the US.
Analysts at Bernstein estimate that the new levies could add as much as $75 billion per year to automakers’ expenses, costs that will likely be passed on to consumers.
Middle-income buyers will bear the brunt of these price increases.
Affordable models such as the Chevrolet Trax, which is manufactured in South Korea, may become out of reach for many American buyers.
“The folks at the lower end of the buying pool are going to suffer the most,” said Erin Keating, executive analyst at Cox Automotive.
Asian automakers hit as stocks tumble
Asian car manufacturers were among the hardest hit following Trump’s announcement.
Toyota and Honda shares fell by 2.74% and 3.05%, respectively, while Nissan, which has two plants in Mexico, dropped 1.84%.
Mazda Motor suffered the sharpest decline, plunging over 6.4%, while Mitsubishi Motors also saw a 4% drop.
South Korean automakers also faced a downturn, with Kia Motors sliding over 3%. Kia, which operates a manufacturing facility in Mexico, faces significant exposure to the tariffs.
Chinese automakers were not spared either, with Nio falling 3.94% and Xpeng losing 1.97%.
In India, Tata Motors, owner of Jaguar Land Rover (JLR), saw its shares crash more than 6% amid fears that the company’s US sales would take a hit.
Hyundai and Kia could see their margins take a hit
Credit ratings agency CreditSights warned that Hyundai Motor and its affiliate Kia could face financial strain from the tariffs.
The 25% levies could push their global operating margins down to less than 6% from a projected 9%, potentially triggering credit rating downgrades.
The tariffs could affect 60% of the vehicles Hyundai-Kia sells in the US, with an estimated cost increase of 25% per unit.
The group can likely only pass 5% of the projected cost increase, and the impact of the tariffs could wipe out its US profitability, the agency said.
Despite investing $21 billion in US expansion plans, Hyundai still imported over a million vehicles into the US last year, accounting for more than half of its American sales.
According to SK Securities analyst Hyuk Jin Yoon, the two South Korean carmakers may have to pay as much as 10 trillion won ($7 billion) annually in tariffs, wiping out nearly 40% of their operating profits.
Toyota and Volkswagen also vulnerable
Toyota, the world’s largest automaker, is also at risk despite having extensive US manufacturing operations in Kentucky, Indiana, Mississippi, Texas, West Virginia, and Alabama.
The company still imports about half of the vehicles it sells in the US.
Volkswagen, Europe’s top carmaker, is similarly vulnerable.
S&P Global Mobility estimates that 43% of Volkswagen’s US sales originate from Mexico, making it a key target of Trump’s trade policy.
Ford to face less severe impact than rivals
Ford Motor Co. could also face a less-severe impact than some rivals, with about 80% of the cars it sells in the US being built domestically.
However, the carmaker builds its entry-level Maverick small pickup in Mexico as well as the Bronco Sport compact SUV and Mustang Mach-E electric vehicle.
General Motors imports certain Chevrolet Silverado pickup trucks from its facilities in Mexico and Canada, along with the entry-level Chevy Trax compact SUV from South Korea and the Chevrolet Equinox crossover SUV.
Both the Equinox and Trax, which rank among GM’s most affordable models, saw sales exceed 200,000 units last year.
Additionally, the company manufactures electric versions of the Equinox and Blazer in Mexico.
Stellantis NV, meanwhile, produces the Jeep Compass and Wagoneer S SUVs in Mexico, making it another major player affected by the tariffs.
Tesla could emerge as a winner among losers
Among the hardest-hit automakers, Tesla appears to be a rare beneficiary of the new tariffs.
The electric vehicle giant produces all its US-sold cars domestically at factories in California and Texas, shielding it from the 25% levies.
While Tesla may still face higher production costs due to tariffs on imported parts, its relative insulation from foreign car imports gives it a competitive edge over rivals.
Trump dismissed speculation that Tesla CEO Elon Musk influenced the tariff decision, stating, “He’s never asked me for a favor in business whatsoever.”
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