Tesla Shields from 25% Tariff, but Imports Remain a Risk

The 25% tariff on imported passenger vehicles, light trucks, and key automotive components, announced by former President Donald Trump, will apply to the non-US portion of vehicles and parts imported under the USMCA. Intended to boost domestic production, the measure is expected to significantly impact automakers with high import volumes. However, Tesla is among the least affected due to its US-based manufacturing. 

Tesla produces all vehicles sold in the United States at its factories in California and Texas. "Tesla is the 'least exposed' to the new tariffs due to its domestic manufacturing operations," said Garrett Nelson, analyst, CFRA Research. 

However, CEO Elon Musk acknowledged that the tariffs would still have a "significant" impact on Tesla, particularly regarding imported components. According to the National Highway Traffic Safety Administration (NHTSA) 60-75% of Tesla's components are US-made, with the majority of the remainder sourced from Mexico. The financial impact remains uncertain, as the value of Tesla’s imported parts is unknown.

Ford Motor Company is also expected to experience a milder impact compared to its competitors. “Approximately 80% of the vehicles we sell in the US are produced domestically,” a Ford spokesperson stated. However, some Ford models, including the Maverick pickup, Bronco Sport SUV, and the electric Mustang Mach-E, are manufactured in Mexico, making them susceptible to tariffs.

Meanwhile, automakers reliant on imports will face significant cost increases. Hyundai Motor and its subsidiary Kia, despite having plants in Alabama and Georgia, imported over one million vehicles into the United States in 2023—more than half of their total US sales, according to Global Data. The South Korean automaker estimates these tariffs could cost them up to US$7 billion annually. In response, Hyundai reaffirmed its “long-term commitment to US automotive growth through localized production and innovation.”

Toyota, the world’s largest automaker, operates four assembly plants and two engine factories in the US but still imports nearly half of its US sales. “Our operations in Mexico fully comply with the USMCA,” a Toyota spokesperson said, addressing concerns over supply chain disruptions. Similarly, Stellantis produces the Jeep Compass and Wagoneer S in Mexico, imports the Chrysler Pacifica from Canada, and sources the Dodge Hornet and Fiat 500 from Italy.

While the tariffs won’t immediately affect parts imported from Canada and Mexico that meet USMCA requirements, the US government has yet to clarify how these duties will be collected. This uncertainty may offer a temporary reprieve from supply chain disruptions, though experts warn that the tariffs challenge the North American trade framework renegotiated during Trump’s first term.

Market reactions to the announcement were mixed. While Ford and Tesla shares remained steady, General Motors stock fell 6.9%, and Stellantis dropped 2% in pre-market trading.

"There are very few winners. Consumers will be the losers, facing fewer choices and higher prices," said Sam Fiorani, Vice President of Global Vehicle Forecasting, AutoForecast Solutions.