Al Root

Teslas, like almost every other car Americans buy, are about to get more expensive with President Donald Trump's bombshell tariffs taking effect.

Exactly how much is hard to say. It's possible to make an educated guess, though.

The President's "Liberation Day" shocked investors with higher-than-expected tariff rates on dozens of nations. Car investors took the news better than others because they already knew that imported cars and car parts would be taxed at 25%, with some adjustments of U.S. content on parts traded between the U.S., Canada, and Mexico.

The S&P 500 dropped 9.1% this past week. The Dow Jones Industrial Average fell almost 3,300 points, or 8%. Ford Motor stock dropped less than 2%.

That doesn't mean things are going to be easy for Ford or Tesla, even if both are relatively well off. Ford only imports about 20% of the cars they sell, mainly from Canada and Mexico. Tesla doesn't import any. But there will still be tariffs on parts.

About 25% of the parts from the average Tesla sold in the U.S. come from Mexico, according to government data. Another 10% come from somewhere overseas, very likely China given its dominance in battery and battery materials. The remaining 65% of a Tesla comes from Canada and the U.S. (The government data doesn't differentiate between the two countries.)

Making a few assumptions, it looks as if the average cost for a Tesla made in America will rise $4,000, or 11%.

The assumptions include something about what percentage of parts come from Canada in the Canada/U.S. total, some benefit for U.S. parts content on things that end up being imported from Canada and Mexico (many Mexican and Canadian parts have some U.S. content), an assumption about tariffs paid by U.S.-based parts companies (they get things from overseas, too), and an assumption about Chinese imports.

If cost increases are passed along to consumers, the average price for a Tesla in the U.S. should rise about 9% to roughly $49,000.

If Telsa doesn't pass any of it along, the company would have to eat an incremental $3 billion in costs. That's a significant sum. Wall Street projects a 2025 operating profit of about $8.3 billion. Tesla earned about $7.1 billion in 2024.

Tesla, of course, could also benefit by getting more market share as other EV makers raise prices more to offset tariff impacts. Several EVs are manufactured overseas. It might not be the boon investors expect, however. The popular Volkswagen ID 4 and Hyundai Ioniq 5 are made in the U.S.

The number of times anyone could iterate the calculations for cost and pricing is endless. What's relatively clear now is that costs for the industry are going up. Tesla is in a relatively good position, but that doesn't mean it faces no pain.

Wall Street is starting to factor in some of that pain. Wedbush analyst Dan Ives cut his Tesla price target to $315 from $55o a share on Sunday. Ives wrote in a note that a brand crisis created by CEO Elon Musk, combined with Trump tariffs equal a "perfect storm for Tesla." Ives still rates the shares a Buy.

Multiple Wall Street analysts have done similar math for how costs will change for Ford, General Motors, and other auto makers. The analysis suggests that in a worse case scenario profits could be completely wiped out for the domestic industry.

It isn't hard to see how. About $200 billion in car parts alone are imported to the U.S. Adding 25% to that is $50 billion. Ford, GM, and Stellantis are expected to make closer to $30 billion in 2025, according to FactSet.

What's more about half of the cars sold in the U.S. are imported, mainly from Mexico, Japan, South Korea, and Canada.

Exactly how the impact of Trump's tariffs will ripple through the auto industry is hard to say. What seems very likely is they will be very painful for everyone -- from parts suppliers, to auto makers, to car buyers.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 06, 2025 13:42 ET (17:42 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.