TLDR
- President Trump announced a 25% tariff on all foreign-made vehicles and select auto parts
- Ford stock dropped nearly 5% in after-hours trading following the announcement
- Other automakers including GM (-6%), Stellantis (-4%), Toyota (-2%) also declined
- Ford may be particularly vulnerable as its US-made vehicles reportedly use only 30% locally sourced parts
- The tariffs take effect April 3 for vehicles, with auto parts tariffs beginning in May
Market Reaction
Ford Motor Co. stock dropped nearly 5% in after-hours trading on Wednesday. This came directly after President Donald Trump announced new auto tariffs.
The president revealed plans to impose an additional 25% tariff on all foreign-made cars and select auto parts. These tariffs cast a wider net than industry expectations had predicted.
The new duties are set to take effect on April 3 for imported vehicles. Tariffs on auto parts will follow, beginning in May or later.
Trump clarified that vehicles manufactured in the United States would not face these new levies. However, this doesn’t fully protect American automakers.
Industry Impact
Ford wasn’t alone in feeling the market’s reaction. General Motors tumbled over 6% in after-hours trading.
Stellantis slid more than 4% during the same period. Japanese automakers also declined, with Toyota Motor down 2% and Honda Motor dropping 1.7%.
The MSCI World Automobiles Index has tumbled 22% so far this year. This reflects broader concerns about trade tensions in the auto sector.
The new 25% tariff will come on top of existing duties. Currently, the base U.S. tariff rate for automotive imports stands at 2.5%.
Trump stated the policy would drive growth in the automotive sector. He believes it will create higher jobs and investment within the U.S.
Ford’s Vulnerability
Analyst Daniel Roeska at Bernstein pointed out a key concern. Ford might be more vulnerable to these tariffs than initially expected.
The issue lies in parts sourcing. Ford’s vehicles made in the U.S. reportedly use only 30% locally sourced parts.
This means even “American-made” Ford vehicles could face higher costs. Many components would still be subject to the new tariffs.
General Motors faces similar challenges. The company manufactures 52% of the vehicles it sells in the U.S. within the country.
However, these GM vehicles contain only 29% locally sourced components. This exposes them to significant tariff impacts.
President Trump signed the proclamation on Wednesday. He described the tariffs as “permanent” and stated he was not interested in negotiating exceptions.
“What we’re going to be doing is a 25% tariff on all cars that are not made in the United States,” Trump said at the White House.
The White House projects these tariffs would generate $100 billion in new annual revenue. They would come into effect at 12:01 a.m. Washington time on April 3.
Initially, the tariffs will target fully assembled vehicles. By May 3, the scope will expand to include major automobile parts.
These parts include engines, transmissions, powertrain components, and electrical systems. There’s potential to broaden the tariffs further as needed.
The European Union swiftly criticized Trump’s move. European Commission President Ursula von der Leyen warned that Europe would defend its economic interests.
Canadian Prime Minister Mark Carney called the tariffs a “direct attack” on auto industry workers. He stated they violate the US-Mexico-Canada trade agreement.
Ontario Premier Doug Ford said Canada would likely retaliate. He urged targeting American cars in response.
Japanese Prime Minister Shigeru Ishiba said he won’t rule out countermeasures. South Korea’s government announced plans for emergency measures to help its auto industry.
Hours after the initial announcement, Trump suggested further tariffs on the EU and Canada. This would happen if they worked together “to do economic harm” to the US.
Analysts warn that the decision could temporarily halt major car production. It may also increase prices and create tensions with key allies.
Car prices are expected to rise as a result of these tariffs. Even US-made vehicles would see price increases if supplies and parts are hit by levies.
One recent study found that tariffs could raise the cost to produce a crossover vehicle by about $4,000. A US-made electric vehicle would jump by about $12,000.
US car and light truck imports were valued last year at more than $240 billion. This indicates the massive scale of the market being affected.
Wall Street analysts currently have a Hold consensus rating on Ford stock. This is based on four Buys, 10 Holds, and two Sells assigned in the last three months.
The average price target for Ford is $10.59. This suggests an upside potential of 3% from its current price.
Bernstein analyst Daniel Roeska has maintained a Hold rating on Ford stock. His price target stands at $9.40.
The tariff announcement may lead to further analyst revisions. Ford’s high reliance on imported parts makes its outlook particularly uncertain.
Trump has indicated that more industry-specific tariffs are in the works. These may impact lumber, semiconductors, and pharmaceutical drugs.
April 2 has been marked as a key date for potential “reciprocal tariffs.” Trump referred to this as “the real Liberation Day of America.”
The auto industry faces significant uncertainty as it adapts to these new trade policies. Companies may need to reconsider their supply chains and manufacturing locations.
United Auto Workers President Shawn Fain applauded the move. “Ending the race to the bottom in the auto industry starts with fixing our broken trade deals,” he said.
However, industry group Autos Drive America warned the levies will have the opposite effect of what Trump wants. They predict “higher prices, fewer options for consumers and fewer manufacturing jobs in the US.”
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