In a significant escalation of trade tensions, President Donald Trump announced on March 27, 2025, that he will impose a 25% tariff on automobiles manufactured outside the United States, a move that has sent shockwaves through the global automotive industry. This announcement has already led to a notable decline in the stock prices of major car manufacturers in both Europe and America, with analysts warning of dire consequences for the sector.
As the news broke, shares of General Motors plummeted by 6.77% around 16:50 GMT. European manufacturers were hit particularly hard; at the Frankfurt Stock Exchange, BMW's stock fell by 2.55%, Mercedes by 2.69%, Volkswagen by 1.57%, and Porsche by 2.62%. In Stockholm, Volvo's stock dropped by a staggering 7.57%, while Stellantis saw a decline of 4.23% in Paris. The impact extended to parts suppliers as well, with Valeo's stock decreasing by 7.76%, Forvia by 1.47%, and Continental by 2.39%. In Asia, Japanese and South Korean automakers also faced losses, with Toyota down 2.04%, Mitsubishi by 3.20%, Honda by 2.48%, and Nissan by 1.67% in Tokyo, while Hyundai's stock fell by 4.28% in Seoul.
These tariffs, which will take effect on April 2, 2025, and will be collected starting April 3, 2025, are set to raise the existing tariff on European cars from 2.5% to a staggering 27.5%. This increase poses a significant challenge for major European manufacturers like BMW, Mercedes, and Audi, which account for 73% of European car exports to the U.S.
Mercedes, which imports half of its cars sold in the U.S. from Europe, is particularly vulnerable. Despite a 9% increase in car sales last year, reaching 324,000 units, the company is now forced to reconsider its strategy. Ola Källenius, the CEO of Mercedes, has proposed a radical solution to the tariff issue, suggesting a mutual reduction of tariffs to zero. "Let’s lower these tariffs on both sides to zero," he stated in an interview with Handelsblatt, highlighting the competitive disadvantage posed by the current tariff structure.
Audi is also feeling the pressure. In 2024, the brand reported a 7.6% drop in revenue to 64.5 billion euros, with a corresponding decrease in its operating margin by 3 points to 6%. U.S. sales for Audi fell by 14%, with only 196,000 vehicles delivered. The decline is particularly acute for the Q5 SUV, which saw a 23% drop in sales to approximately 57,000 units, and the A4 sedan, which plummeted by 48%. As the company lacks a manufacturing facility in the U.S., it is exploring options to produce vehicles at Volkswagen's Chattanooga plant in Tennessee or a future site in South Carolina.
Meanwhile, BMW has reported a modest increase of 2.5% in U.S. sales in 2024, totaling 371,000 vehicles. The success of its electric sedan, the i4, which sold 23,403 units—a 3.6% increase—offers a glimmer of hope amidst the turmoil. However, the looming tariffs could overshadow these gains, prompting BMW to strengthen its Spartanburg, South Carolina facility, which manufactures roadsters and SUVs.
The European automotive sector has expressed deep concern over the implications of these tariffs. The European Automobile Manufacturers Association (ACEA) warned that the decision would have a "negative impact" on the global automotive industry, affecting not just European manufacturers but American ones as well. Ursula von der Leyen, President of the European Commission, has voiced her discontent, stating, "I deeply regret the American decision," and emphasized that the EU will seek negotiated solutions while also preparing for "firm and proportionate countermeasures."
The complexities of the situation are further amplified by the intertwined nature of the automotive supply chain across North America and Europe. Many non-American manufacturers produce vehicles locally or export through Canada and Mexico, complicating the potential fallout from the tariffs. As the global automotive landscape shifts, manufacturers will need to adapt quickly to the changing trade environment.
The timing of Trump's tariff announcement could not be worse for German automakers, who are already grappling with rising production costs driven by inflation and the transition to electric vehicles mandated by European regulations. Compounding their challenges, these manufacturers are losing market share in China to local competitors like BYD.
As the automotive industry braces for the impact of these tariffs, stakeholders are left to ponder the broader implications of this trade war. Will manufacturers increase production in the U.S. to mitigate the effects of tariffs? Will consumers face higher prices for imported vehicles? The answers remain uncertain, but one thing is clear: the automotive sector is at a crossroads, and the decisions made in the coming weeks will have lasting repercussions.
In the face of these challenges, the automotive industry stands resilient, with manufacturers exploring innovative solutions to navigate the turbulent waters ahead. The outcome of this trade dispute will not only shape the future of the industry but will also influence the economic landscape on both sides of the Atlantic.
