Al Root

Car stocks took it on the chin Monday from President Donald Trump's new tariffs on Mexico and Canada -- and had Americans wondering whether they should buy a new car right now.

Trump's tariffs -- and potential retaliation from those trade partners -- have the potential to snarl global supply chains and raise costs for car companies while increasing prices for consumers.

Tesla stock was down 6.1% in midday trading at $380.01. Ford Motor shares were down 1.5% at $9.92. General Motors fell 2.6% to $48.19. Rivian Automotive shares fell 2.2%. Lucid stock was flat.

Tariffs are particularly nettlesome for the auto industry. Millions of cars sold in the U.S. each year are assembled in Canada or Mexico, points out as Freedom Capital Markets analyst Mike Ward.

Then there are car parts. Roughly 30% to 50% of parts on popular models come from Mexico or Canada, according to government data. Shares of car parts makers Aptiv, Lear, and Magna were off 3.9%, 3.9%, and 7.8%, respectively.

Impacts on pricing are theoretical, but the levies add roughly 8% to 10% to the total cost of manufacturing and selling vehicles in the U.S. (The average transaction price for a new car in December 2024 was $49,740, according to data provider Kelly Blue Book.)

That doesn't mean, however, that prices are going up 10% tomorrow. Prices are a function of demand and profitability. What's more, price actions aren't uniform across all car models and companies.

In fact, if tariffs slow down the U.S. economy and demand for new cars falls, it is just as likely new car prices stay flat or decline a little in 2025.

A slowing economy also impacts interest rates. For the average auto loan, a 5% increase in the sticker price from a tariff would be wiped out by a 2 percentage-point drop in interest rates.

It also doesn't make a lot of sense to look for mostly American-made cars. If the price of a Volkswagen Taos, assembled in Mexico, goes up by 25%, Ford will likely raise the price of its competing Bronco, made near Detroit, too.

VW shares were down 4.5% in overseas trading. It has a plant in Mexico and a plant in Tennessee that serve the U.S. market. VW sold about 379,000 cars to Americans in 2024, out of about nine million globally.

Investors can focus on where cars are made to figure out the impact. Cars.com produces an annual Made-In-America survey. For 2024, the Tesla Model Y was the most American-made car. General Motors had the most models on the list. GM stock, however, was hit harder than Ford shares in the past week as investors tried to suss out exactly how tariffs would impact each auto maker.

Investors and car buyers also need to consider what comes next. Canada and Mexico will retaliate and negotiate.

"This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens," Trump wrote on X.

Things could settle down if progress is made on immigration and drugs. Trump, however, has also said repeatedly that a goal of tariffs is to bring more manufacturing back to the U.S.

Tariffs will be a watch item for investors all year. And for car buyers, too. But buyers will buy what they need when they need it and look for a good deal along the way. Tariffs don't won't change that.

Coming into Monday, Tesla stock had been flat so far this year. Ford shares had risen about 2%. GM stock had fallen about 7%. The S&P 500 had gained almost 3%.

GM shares dropped almost 9% after reporting fourth-quarter numbers last week. Financial guidance for 2025 was better than expected, but GM didn't quantify the impact of tariffs on its financial guidance. That shook investors' confidence.

Write to Al Root at allen.root@dowjones.com

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February 03, 2025 14:23 ET (19:23 GMT)

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