Automaker stocks fell sharply on Thursday after U.S. President Donald Trump announced plans to impose a 25% tariff on all foreign-made vehicles and auto parts entering the United States, triggering concerns over rising costs and potential disruptions to the global supply chain.
Volkswagen, BMW, Mercedes-Benz, Porsche, and Continental collectively lost €4.5 billion ($4.84 billion) in market value, as investors reacted to the prospect of higher expenses in an industry already grappling with the challenges of electrification and supply chain pressures. The tariffs, set to take effect on April 3 for vehicles and May 3 for auto parts, present a difficult choice for automakers—either absorb the increased costs, pass them on to consumers, or shift more production to the U.S.
“Automakers are now assessing their options, but some executives are hesitant to make long-term decisions based on what could be a short-term policy,” an industry source said. Several manufacturers, including Volvo Cars, Volkswagen’s Audi, Mercedes-Benz, and Hyundai, have already announced plans to relocate some production to North America.
Industry Braces for Economic Impact
Shares in Stellantis and Porsche dropped 4% on Thursday, while Mercedes-Benz fell 2.8%. General Motors and Ford Motor experienced even steeper declines, with premarket trading showing losses of 6.5% and 4.3%, respectively. Porsche, which lacks a U.S. production facility, saw a more pronounced drop of 4.9%.
The tariffs could significantly raise vehicle prices in the U.S., contradicting Trump’s pledge to combat consumer product inflation. Analysts at Bernstein Research noted that the policy has heightened investor concerns. “These policies have already made equity and debt markets extremely nervous, and we know that the president regards the Dow Jones index as a key barometer of his success,” they wrote in a note.
According to Cox Automotive, a leading industry research firm, the new tariffs could add approximately $3,000 to the cost of a U.S.-manufactured vehicle and up to $6,000 for cars produced in Canada or Mexico without exemptions. The firm predicts that if the tariffs proceed, North American vehicle production could drop by around 20,000 units per day, a reduction of roughly 30%.
Implications for North American Trade
Automakers in North America have largely operated under free trade agreements since 1994, with Trump’s 2020 U.S.-Mexico-Canada Agreement (USMCA) reinforcing regional content rules. However, the new tariff policy does not extend previous exemptions for vehicles compliant with USMCA terms.
While the White House stated that importers under USMCA will have the option to certify U.S. content and only pay tariffs on non-U.S. components, uncertainty remains over how automakers will respond. Trump has reiterated that he expects the tariffs to encourage carmakers to boost investment in U.S. manufacturing rather than relying on Canada or Mexico.
Moritz Kronenberger of Union Investment, which holds shares in Volvo, Volkswagen, Mercedes-Benz, and Continental, said the impact would be felt industry-wide. “This is a disaster for the entire sector,” he said.