Shares of Japanese automakers in our coverage are under pressure as US President Donald Trump signed a proclamation implementing a 25% tariff on US auto imports, all passenger cars, and light trucks not made in the US, effective on April 2.
Tariffs Hurt Global Automotive Stocks
Why it matters: We believe the new levies on imported cars would hurt most global automakers, including Japanese carmakers. In calendar year 2024, 54%, 71%, and 56% of Toyota’s, Honda’s and Nissan’s US vehicle sales were made in local plants, respectively.
- According to the White House, the new tariff, on top of any already existing levies, will apply to whole vehicles as well as key components such as engines, transmissions, powertrain parts, and electrical components. That list could expand to include additional parts.
- The tariff could potentially raise foreign-made car prices for consumers, affecting affordability. We think it could even push up prices of locally made vehicles if the mentioned components are sourced elsewhere.
The bottom line: We maintain fair value estimates for three Japanese automakers, Toyota, Honda, and Nissan, under our coverage. It is not yet clear how much of the tariff would be passed on to suppliers and consumers and how demand would be affected by higher prices or reduced incentives.
- In addition to the 25% tariff costs, it would cost automakers billions to relocate production capacity, which may lead to operation disruption and higher manufacturing costs.
Between the lines: Vehicles and parts that are compliant with the United States-Mexico-Canada free trade agreement will be exempted from Trump’s new action, until there’s a methodology to trace it, and only the non-US content of these vehicles will be taxed.
- We estimate all vehicles that Toyota, Honda, and Nissan produce in Canada and Mexico are covered by the USMCA agreement. North America production accounted for 75%, 100%, and 91% of their North America sales volume in calendar 2024, respectively.
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