As you know, President Donald Trump recently imposed a 25% tariff on all foreign-made cars. This audacious step has sent waves of disruption through the entire automotive ecosystem. His continued and increasingly reckless trade war has roiled the markets with devastating uncertainty. Faced with this reality, several of China’s largest automakers—including BYD, Geely and GAC—have been forced to downgrade their profit expectations. The costs are being passed to consumers both here and around the world, as businesses try to adjust from higher production costs and demand shifts.
And on Tuesday, President Trump threw a huge lifeline to the auto industry—all domestically produced cars, anyway. He gave them two years to increase the share of local parts in vehicles produced in the U.S. With a goal of increasing local manufacturing and countering some of the negative impact of the tariffs, this initiative hopes to provide relief for affected communities. But with the administration doubling down on tariffs and their permanence, the industry needs to move quickly to address this new reality.
Our automotive sector has been under tremendous strain in recent weeks. Volatile market conditions have been exacerbated by the ongoing fallout from Trump’s trade war. Now, as manufacturers try to grapple with these issues, they’re starting to see the effect on their profit margins. Market analysts forecast that the tariffs will remain effective for the year. That’s enough to cut car sales profit margins by three points and ding those for van sales by one point.
Automakers altogether, as seen with giants like Mercedes-Benz and Stellantis, have reacted to this chaos by throwing out their profit guidance to calm this storm. Mercedes-Benz’s Chief Financial Officer Harald Wilhelm stated that full-year guidance “cannot be provided today with a reliable degree of certainty.” Likewise, Stellantis cited changing tariff policies and projected market volume as factors for their decision.
Volkswagen’s Chief Financial Officer Arno Antlitz acknowledged the uncertainty but refrained from quantifying the tariffs’ impact on the company, emphasizing that it was too early to make such assessments. He remarked, “We stand ready to work with policymakers to find solutions to support the industry while preserving opportunities for workers.”
With the tariffs set to increase U.S. car prices by thousands, it’s likely to have a chilling effect on consumer demand as well. Automakers are having a hard enough time making the transition to electric vehicles, but the additional burden of tariffs makes their task all the more difficult. To be safe, Aston Martin has preemptively restricted exports to the U.S. That’s the company’s short-term strategy, dependent on its pre-tariff inventories—expected to last through early June.
These actions have industry experts worried about the precedent and broader implications Trump’s trade policy could create. Doug Ostermann stated, “Most of us are in a period of waiting for a bit more clarity,” highlighting the industry’s need for predictability in order to thrive. Pal Skirta added that the evolving situation could create “two burdens for manufacturers,” potentially affecting investment decisions, stock availability, and consumer confidence.
Philipp Sayler von Amende emphasized the necessity for stability in this global industry, stating, “from investment decisions to stock availability and consumer confidence, this is a global industry that needs clarity – not surprises – to thrive.” He cautioned that Trump’s history of changing course adds another layer of unpredictability: “Trump has a track record of changing course, so there’s every chance we’ll see further adjustment.”
Ola Källenius, CEO of Daimler AG, said he hoped for “calm waters” as a response to a wish for calm when sailing through these changeable seas. He stated that businesses must “see this through with a steady hand,” underscoring the importance of maintaining focus amidst external pressures.
Automakers are already taking a close look at their strategies as tariffs continue to roil. They now find themselves driving down an innovation highway fraught with potholes and rapid-fire policy shifts. Fabio Caldato noted that investors are adapting to this uncertainty: “as investors, we play by it by ear…relying on common sense prevailing in current tariff negotiations.”
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