Trump Pledged To Support Tesla. His Trade Policies Will Do the Opposite.
Tariffs on steel and aluminum imports inflate the cost of electric vehicles.
After experiencing a drop in sales and its worst day on the stock market in five years on Tuesday, Tesla received a ringing endorsement from President Donald Trump, who took to Truth Social to pledge his "support for Elon Musk," promising to buy "a brand new Tesla."
Trump followed up this announcement by implementing a global 25 percent tariff on steel and aluminum imports on Wednesday. While the president's social media posts may be pro-Tesla, his trade policies are not.
In an unsigned letter to U.S. Trade Representative Jamieson Greer, Tesla said Trump's trade war would have "disproportionate impacts" on the manufacturer's business. The Model Y, for instance, weighs almost 4,400 pounds and is composed largely of steel and aluminum. The Cybertruck, meanwhile, relies on Finnish suppliers for its exterior stainless steel panels.
The U.S. is the second-largest steel importer in the world and sources most of its aluminum from overseas. The latest move in the Trump trade war "will add significant costs for automakers, suppliers and consumers," the American Automotive Policy Council told CBS News. In February, Citi Bank warned a 25 percent tariff could increase steel prices by $100 to $150 per short ton. Aluminum producers say these fees will "nearly immediately" result in higher costs for everything from cars to beer cans.
The 25 percent tariffs on most Canadian and Mexican goods, which are paused but set to resume on April 2, will inflate vehicle prices even further.
Car manufacturing is a globalized industry and relies on inputs from numerous countries, especially Mexico and Canada, which are America's top trading partners for automobiles, explain Scott Lincicome and Alfredo Carrillo Obregon of the Cato Institute. In 2023, the two countries accounted for 47 percent of U.S. motor vehicle imports and 54 percent of imported motor vehicle bodies and parts. Nearly half of the cars imported from Mexico were made by the Big Three Detroit manufacturers—Ford, General Motors, and Stellantis. Roughly 45 percent and 75 percent of America's exports of cars and motor vehicle bodies and parts went to these countries, respectively.
For Tesla, the tariffs set to go live next month will increase costs throughout its supply chain. A Model Y is composed of 70 percent American and Canadian products and 20 percent Mexican products. (The National Highway Traffic Safety Administration does not distinguish between American and Canadian components because manufacturing is so interwoven.) The Model 3 is 75 percent American/Canadian and 25 percent Mexican.
Of course, Tesla isn't the only car company that will be impacted by these tariffs.
The Mustang Mach-E—Ford's midsize electric vehicle—is 13 percent American/Canadian and 78 percent Mexican. Ford's gas-powered vehicles, including the F-150—which gets 45 percent of its components from the U.S. and Canada and its 3.5-liter engine from Mexico—and the Ford Bronco Sport (65 percent Mexican and 23 percent American/Canadian) could also see production costs increase.
The first Trump administration's tariffs on steel and aluminum increased input costs and decreased production in the automotive industry. A 2019 report from the Center for Automotive Research estimated that tariffs on Mexico and Canada alone cost light-duty car manufacturers $500 million per year (in 2019 dollars).
The tariffs of the second Trump administration appear to be just as damaging. On Wednesday, S&P Global Mobility projected there to be a 50 percent chance that the auto industry would experience extended disruption, reports the Detroit Free Press. The firm says North American production could decline by as much as 20,000 vehicles per day within the next week.
