Investors quickly pulled back from major global carmakers, including Toyota, BMW, and Jaguar Land Rover, after President Donald Trump’s announcement of a new 25% import tax on vehicles and car components. Just one day before the announcement, the auto industry was hit with a major shock. The new tariffs are set to impact foreign car manufacturers who sell to the U.S. market, shaking up the global manufacturing and trade sector.

Billions in Market Losses Within Hours

The announcement left automakers and investors stunned. In just hours, billions of dollars were wiped from the market value of top carmakers. Shares of Toyota, BMW, and Jaguar Land Rover plunged, as investors feared the long-term consequences of the tariffs. Even General Motors (GM), which is based in the U.S., saw its stock drop by more than 7% on the same day, reflecting the widespread concern about how the tariffs will impact the global automotive industry.

Interestingly, Tesla, which has domestic factories, didn’t see the same level of decline. Tesla’s stock remained relatively stable, partly due to the company’s close ties with the Trump administration. However, CEO Elon Musk made it clear that his company wouldn’t avoid the effects of the new tariffs. “Tesla won’t come through this untouched,” Musk said in an online post. “The financial impact won’t be minor.”

Rising Costs for All Automakers

The new tariffs will affect more than just foreign manufacturers. Tesla, despite being a U.S.-based company, could also feel the sting of higher costs. The company’s popular Model Y, which is assembled in the U.S., uses about 70% American-made parts. According to Patrick Masterson, the lead analyst for the American-made car index, no vehicle is entirely American-made, regardless of where it is assembled. The tariffs will raise costs for all carmakers—domestic and foreign alike—and these costs will likely be passed on to consumers.

Analysts at Macquarie have estimated that the tariffs could affect up to $300 billion to $400 billion in imports annually, which represents about 10% of total U.S. imports. This could result in price increases of $4,000 to $12,000 for affected vehicles, depending on the make and model. This is a significant jump, and car buyers could feel the burden of these higher prices at dealerships across the country.

U.S. Production and Global Supply Chains

Many of the world’s biggest automakers have plants in the U.S., but they still rely on imported components or fully built models from overseas. Toyota, for example, operates ten factories in the U.S. but still ships its Prius models from Japan. Similarly, General Motors and Volkswagen import vehicles and key parts from countries like Mexico and South Korea. These supply chains could face disruptions as a result of the new tariffs, potentially leading to production slowdowns in countries like Japan, Germany, and South Korea.

Experts at Oxford Economics have suggested that some companies might move more production to the U.S. to avoid the tariffs. However, this could raise costs as well, since building more vehicles domestically would still require sourcing parts from around the world. Shifting production could also lead to a reduction in output from other countries, further straining international supply chains.

Luxury Brands Hit Harder by Tariffs

The new tariffs will have an even greater impact on high-end European luxury carmakers such as Audi, Mercedes-Benz, and Jaguar Land Rover. These companies tend to sell fewer cars but at much higher prices, and they depend heavily on exports to the U.S. market. As a result, the tariffs will significantly increase costs for these manufacturers, and they may need to raise prices, reduce production, or even withdraw certain models from the U.S. market entirely.

Ferrari, the iconic Italian carmaker, was quick to raise its prices by 10% in response to the tariffs. Analysts predict that other high-end manufacturers will follow suit, raising prices or scaling back production in the face of higher costs. In addition, Patrick Anderson, an economist, warned that carmakers like Porsche and Jaguar Land Rover, which do not have large U.S. factories, might have to cut back on production. This could hurt jobs in their home countries, particularly if U.S. sales fall significantly.

Mitsubishi and Hyundai are also expected to be affected, as Mitsubishi imports all of its cars for the U.S. market, while Hyundai still imports most of its vehicles from South Korea. Although Hyundai recently announced a new U.S. factory project, production still relies largely on overseas plants.

Trump Defends Tariffs as Support for U.S. Manufacturing

President Trump defended the tariffs, calling them a permanent measure designed to support U.S. manufacturing and reduce trade deficits. The president has long pushed for policies that prioritize U.S.-made goods and reduce reliance on imports. Trump has already imposed similar tariffs on goods from Mexico and Canada, as well as on steel and aluminum imports in previous years. He argues that the new tariffs will boost American manufacturing jobs and level the playing field for U.S. carmakers.

The tariffs on fully assembled vehicles will go into effect on April 3, with duties on specific parts set to begin a month later. The White House has indicated that imports from Canada and Mexico will be exempt temporarily during this transition period, though the long-term effects remain unclear.

The Financial Impact on U.S. Carmakers

U.S. automakers will not be immune to the rising costs. JP Morgan estimates that General Motors could face an additional cost burden of at least $10.5 billion due to the new tariffs. Ford could see its additional costs begin at $2 billion, with that number doubling as the tariffs on car components take full effect. Industry-wide, the added costs could exceed $80 billion, according to the bank’s analysis.

Jennifer Safavian, president of Autos Drive America, warned that foreign carmakers are still trying to assess the full consequences of the tariff decision. “Prices will rise, sales will fall, and production will slow down,” she said. “They’re trying to process this, but these tariffs will undoubtedly hit the U.S. car market hard.”