Investing.com -- On Wednesday, the Trump administration confirmed a sweeping 25% tariff on all imported completed vehicles and certain auto parts not made in the United States, effective April 2, 2025. This move is seen by Deutsche Bank (ETR:DBKGn) as a permanent policy aimed at incentivizing the reshoring of automotive production to the US, rather than a temporary negotiating tactic.
Deutsche Bank analyst Edison Yu said, "We sense the administration is fundamentally supportive of some level of incremental tariffs to encourage reshoring, and these are more than just negotiating tactics. Therefore, even if the tariffs are modified and/or exemptions are granted, the industry may not return to the status quo for the next four years."
The analyst then offered an overview of the impact on the auto industry, projecting Tesla Inc (NASDAQ:TSLA) and Ford Motor Company (NYSE:F) as the least impacted among original equipment manufacturers (OEMs) due to their significant US assembly operations. General Motors Company (NYSE:GM), on the other hand, is expected to be the most affected due to its substantial manufacturing presence in Mexico.
Yu anticipates the tariffs to have derivative impacts on most suppliers, with Aptiv PLC (NYSE:APTV), American Axle&Manufacturing (NYSE:AXL), Visteon Corp (NASDAQ:VC), and more potentially facing direct challenges, saying, "As for American Axle, Aptiv, BorgWarner (NYSE:BWA), Dana, and Visteon, these suppliers will face impacts of varying degrees, but all have expressed intention to recover costs from OEMs similar to what happened during COVID."
Yu expects the industry to respond to these tariffs by adjusting production footprints and levels, which may result in volatility and reduced volumes. While suppliers intend to pass the additional costs of tariffs onto OEMs, it remains uncertain whether the OEMs will fully absorb these costs. It is important to note that President Trump also plans to introduce tax provisions that would allow consumers to deduct loan interest on US-made vehicles, pending legislation.
The analyst observed that the US has experienced a significant import/export imbalance, with imports vastly outnumbering exports in the automotive sector. This tariff is part of the administration's strategy to address this imbalance by encouraging structural changes through reshoring production, extending beyond automotive to other industries like semiconductors.
For Tesla, the impact is expected to be minimal, as all of its production occurs domestically. Ford, which assembles 82% of its vehicles in the US, is also better positioned compared to other automakers that rely more heavily on imports. Yu's analysis suggests that while Tesla's exposure to tariffs on imported parts is relatively low, Ford could face a more significant price increase to offset the effects of the tariffs, particularly due to imported engines for certain models.
In the face of these new tariffs, Deutsche Bank believes OEMs and suppliers will need to navigate a complex landscape of cost recovery and price adjustments. The overall impact on the automotive industry will likely be a combination of strategic production shifts and a reassessment of manufacturing footprints, with the potential for an uncertain production environment and lower global volumes.
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