President Trump is slapping 25% tariffs on all cars imported into the US, including his North American neighbours. He also places a 25% tariff on certain parts used in the construction of cars. This is a decision that is likely to charge the costs of new and used cars, but it is also a gift for Tesla, a company run by Elon Musk, his biggest financial advocate in the presidential election.
The new tariff regime is coming at an auspicious time for Tesla. The company is dealing with the fallout of Musk’s far-right ideological promotion and his involvement with the government’s unpopular efficiency that has sparked protests around the world. Tesla has recently relied on promotions and price cuts to drive sales, but has sold fewer EVs than 2024, making a rough start in 2025.
New tariffs could change that calculus, at least in the United States. Tesla builds all of its vehicles for the US North American market at its Fremont, California and Austin, Texas. This means that none of the cars sold in the US are subject to 25% vehicle import tax.
Tesla imports about 20% to 30% of the components used to build those cars, which causes headaches. Musk acknowledged in X that Tesla was “not intact” by these tariffs, claiming it would have a “significant” effect. However, the company’s long-standing efforts to establish a local supply chain near the factory are now paying off.
Essentially, all other automakers are in a worse position than Tesla, and tariffs are particularly affected by competing EVs. Approximately 80% of vehicles sold in the US are built domestically. But it makes the popular (and much more affordable) Maverick hybrid pickup truck with all of Mexico’s electric Mustang Mach-E.
Meanwhile, General Motors is building blazers and Equinox EVs in Mexico. Hyundai has proven successful in electric vehicles in the US market, but almost all of them are built in Korea.
Just like Tesla, emerging electric car manufacturers like Libian and Lucid Motors make EVs in Illinois and Arizona respectively, so there’s no need to worry about import duties on vehicles. Like Tesla, they import parts that are subject to tariffs, but both companies are still in a bad position to absorb those costs as they still lose buckets of money on every EV they sell.
This sets up a scenario where other EVs could potentially increase in price than Tesla implements. That price separation could be even more beneficial for Tesla when it unveils this year’s mystical new, low-cost EV.
Of course, Trump announced these tariffs after weeks of scattering about whether he would implement them in the first place. The president argues that these will be “permanent.” But like many others he proposes, it can always change.
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