Auto Tariffs: Impact on Ford, Stellantis Stock & Future of US Car Manufacturing

Published on: May 18, 2025

The Auto Tariff Tightrope: Ford, Stellantis, and the American Automotive Industry

The automotive industry, a cornerstone of the American economy, is increasingly navigating a complex web of international trade regulations, particularly auto tariffs. These tariffs, taxes imposed on imported automobiles and auto parts, have a ripple effect, impacting not only major automakers like Ford and Stellantis but also the entire US car manufacturing ecosystem. This article delves into the profound consequences of auto tariffs, exploring their effect on stock prices, supply chains, manufacturing costs, and ultimately, the future of American car production.

Understanding Auto Tariffs: A Primer

Auto tariffs are not new, but their prominence has surged in recent years amid heightened global trade tensions. Historically, tariffs have been used to protect domestic industries, encourage local manufacturing, and generate revenue for governments. However, they can also trigger retaliatory measures, disrupt supply chains, and increase costs for consumers.

Here’s a breakdown of key aspects:

Types of Tariffs: Ad valorem (a percentage of the value), specific (a fixed amount per unit), and compound (a combination of both).
Affected Products: Complete vehicles, auto parts, and components.
Targeted Regions: Tariffs can be applied to specific countries or regions, often based on trade agreements or political considerations.

The Impact on Ford and Stellantis Stock Prices

Auto tariffs introduce significant uncertainty into the market, directly impacting the stock prices of major automakers. Ford and Stellantis, both deeply integrated into global supply chains, are particularly vulnerable to these fluctuations.

Ford Motor Company:

Ford's stock performance is intricately linked to its ability to efficiently source parts and sell vehicles globally. Auto tariffs can disrupt this balance in several ways:

Increased Production Costs: Tariffs on imported parts, especially from countries like China or Mexico, raise the cost of manufacturing vehicles in the US. This can erode profit margins and make Ford less competitive.
Reduced Export Competitiveness: Retaliatory tariffs imposed by other countries on US-made vehicles can hinder Ford's export sales, leading to decreased revenue and lower stock valuations.
Consumer Demand Shifts: Higher vehicle prices due to tariffs can dampen consumer demand, negatively impacting Ford's sales volume.

Example: In 2018, when the US imposed tariffs on steel and aluminum imports, Ford estimated that the increased costs would reduce its profits by $1 billion. This announcement had a noticeable negative impact on Ford's stock price at the time.

Stellantis (formerly Fiat Chrysler Automobiles):

Stellantis, formed by the merger of Fiat Chrysler Automobiles (FCA) and PSA Group, faces similar challenges. With a significant manufacturing footprint in both North America and Europe, the company is exposed to tariffs on multiple fronts.

Cross-Border Supply Chains: Stellantis relies on complex supply chains that span continents. Tariffs can disrupt these chains, leading to delays, increased costs, and reduced production efficiency.
European Market Vulnerability: Stellantis has a strong presence in the European market, which is also subject to tariffs and trade disputes. These factors can negatively impact the company's overall financial performance.
Jeep's Reliance on Global Sourcing: The Jeep brand, a key profit driver for Stellantis, sources many components from overseas. Tariffs on these components can significantly impact Jeep's profitability.

Impact Quantification: While quantifying the precise impact of tariffs on Stellantis stock is complex, analysts generally agree that tariffs contribute to market uncertainty and downward pressure on stock valuations. Events like the implementation of Section 232 tariffs on steel and aluminum have served as reminders of this ongoing risk. Any threat to global trade agreements will have investors on edge and affect stock prices.

The Ripple Effect: Tariffs and the US Automotive Supply Chain

The impact of auto tariffs extends far beyond the major automakers. The US automotive supply chain, a vast network of suppliers, manufacturers, and distributors, is also significantly affected.

Tier 1 Suppliers: These companies directly supply parts and components to automakers. They often operate on thin margins and are highly sensitive to changes in input costs caused by tariffs. For example, a tariff on imported steel can increase the cost of producing chassis components, forcing Tier 1 suppliers to raise prices or absorb the losses.

Tier 2 and Tier 3 Suppliers: These companies supply raw materials and sub-components to Tier 1 suppliers. They are indirectly affected by tariffs as their customers face increased costs. This can lead to reduced orders and lower profitability for Tier 2 and Tier 3 suppliers.

The Threat to US Jobs: The disruption caused by auto tariffs can lead to job losses throughout the supply chain. As companies struggle to absorb increased costs, they may be forced to reduce their workforce or even shut down operations.

Case Study: The 2018 tariffs on steel and aluminum imports led to significant disruptions in the automotive supply chain. Some smaller suppliers were forced to lay off workers or close their doors. This highlighted the vulnerability of the supply chain to trade policy changes.

Manufacturing Costs and Competitiveness

Auto tariffs directly influence the cost of manufacturing vehicles in the US. By increasing the price of imported parts and components, tariffs make it more expensive to produce cars domestically. This can reduce the competitiveness of US automakers in the global market.

Impact on Production Decisions: Higher manufacturing costs can prompt automakers to shift production to countries with lower tariff barriers. This can lead to a decline in US manufacturing output and job losses. The United States Mexico Canada Agreement (USMCA) has a labor provision that requires that 40-45% of auto content be made by workers earning at least $16 per hour, potentially increasing labor costs for vehicles imported from Mexico and Canada. This change is meant to encourage automotive production in the United States. This has led to increased investments in domestic plants but also higher costs.

Erosion of Profit Margins: Tariffs can erode automakers' profit margins, making it more difficult to invest in research and development, new technologies, and plant upgrades. This can hinder innovation and long-term competitiveness.

Consumer Price Increases: Ultimately, the cost of tariffs is often passed on to consumers in the form of higher vehicle prices. This can dampen demand and negatively impact sales.

Expert Perspective: Economists generally agree that tariffs are a tax on consumers. They increase the cost of goods and services, reduce purchasing power, and can lead to inflation.

The Future of US Car Manufacturing: Navigating the Tariff Landscape

The future of US car manufacturing depends on how automakers and policymakers navigate the complex tariff landscape. Several strategies can help mitigate the negative impacts of tariffs and ensure the long-term health of the industry.

Supply Chain Diversification: Automakers can reduce their reliance on specific countries or regions by diversifying their supply chains. This can help mitigate the risk of tariff-related disruptions.

Strategic Sourcing: By carefully sourcing parts and components from countries with favorable trade agreements, automakers can minimize the impact of tariffs.

Investment in Automation: Automating manufacturing processes can help reduce labor costs and improve efficiency, making US plants more competitive.

Government Support: Government policies, such as tax incentives and infrastructure investments, can help support the US automotive industry and offset the negative effects of tariffs.

Negotiating Trade Agreements: Engaging in negotiations to reduce or eliminate tariffs can help level the playing field and promote fair trade.

Reshoring Initiatives: While perhaps not a widespread trend, policies promoting the reshoring of manufacturing activities to the U.S. may present opportunities in the long term. This is complicated, though, by the increased production costs domestically.

Tariffs and the Shift to Electric Vehicles (EVs)

The growing popularity of electric vehicles adds another layer of complexity to the auto tariff equation. Tariffs on EV batteries, components, and critical minerals can significantly impact the cost of producing EVs in the US.

Battery Supply Chain Concerns: China currently dominates the global EV battery supply chain. Tariffs on Chinese-made batteries and components could hinder the growth of the US EV market. It is estimated that China controls over 70% of the global battery production capacity.

Critical Mineral Dependence: The production of EV batteries requires access to critical minerals such as lithium, cobalt, and nickel. Many of these minerals are sourced from countries that are subject to tariffs. The Inflation Reduction Act offers tax credits for EV purchases, but the vehicle must meet certain requirements concerning the sourcing of battery components and critical minerals, incentivizing domestic and allied nation production. This can drive significant investment in the US and allied nations' battery and critical minerals supply chains.

Impact on EV Adoption: Higher EV prices due to tariffs could slow down the adoption of electric vehicles in the US. This would undermine efforts to reduce greenhouse gas emissions and combat climate change. The cost of batteries represents a significant portion of the overall EV cost, so tariffs on batteries would have a large effect.

Policy Recommendations: Policymakers need to carefully consider the impact of tariffs on the EV industry and develop strategies to ensure a smooth transition to electric mobility. This could involve negotiating trade agreements, investing in domestic battery production, and supporting the development of alternative battery technologies.

The Impact of Geopolitical Instability

Geopolitical instability can exacerbate the negative effects of auto tariffs. Conflicts, political tensions, and economic sanctions can disrupt supply chains, create uncertainty, and lead to further trade barriers.

The Russia-Ukraine War: The war in Ukraine has disrupted global supply chains, particularly for components and materials sourced from Eastern Europe. This has added to the challenges faced by automakers.

China-Taiwan Tensions: Tensions between China and Taiwan pose a significant risk to the automotive industry. Taiwan is a major producer of semiconductors, which are essential for modern vehicles. Any disruption to the supply of semiconductors could have a devastating impact on global car production. The U.S. government has implemented policies such as the CHIPS Act to bolster domestic semiconductor manufacturing capabilities.

Trade Wars: Trade wars between major economies can lead to a spiral of retaliatory tariffs, further disrupting global trade and investment. The US-China trade war in recent years has had a significant impact on the automotive industry.

Risk Management: Automakers need to develop robust risk management strategies to mitigate the impact of geopolitical instability. This could involve diversifying supply chains, building buffer stocks of critical components, and closely monitoring political and economic developments.

Case Studies: Real-World Examples of Tariff Impact

Examining real-world examples can provide valuable insights into the impact of auto tariffs.

The US-China Trade War (2018-Present): The US-China trade war led to a series of tariffs on automobiles and auto parts. This resulted in increased costs for automakers, reduced sales, and disruptions to supply chains. Ford and Stellantis had to adjust their sourcing and pricing strategies to mitigate the impact of the tariffs. This trade war highlighted the interconnectedness of the global automotive industry and the vulnerability of companies to trade policy changes.

The Section 232 Investigation (2018-2019): In 2018, the US government launched a Section 232 investigation into the impact of imported automobiles and auto parts on national security. While no tariffs were ultimately imposed, the investigation created significant uncertainty and prompted automakers to reassess their global sourcing strategies. This investigation served as a reminder of the potential for trade policy to disrupt the automotive industry.

The USMCA Agreement (2020): The USMCA agreement replaced NAFTA and included new rules of origin for automobiles. These rules require a higher percentage of auto content to be produced in North America in order to qualify for tariff-free treatment. This has prompted automakers to increase their investments in North American manufacturing facilities.

Mitigation Strategies: How Automakers Can Adapt

Automakers can adopt several strategies to mitigate the negative effects of auto tariffs.

Supply Chain Optimization: Streamlining supply chains, reducing inventory levels, and improving logistics can help reduce costs and improve efficiency.
Product Innovation: Developing new and innovative products can help automakers differentiate themselves from competitors and attract customers.
Strategic Partnerships: Forming strategic partnerships with other companies can help automakers share costs, access new technologies, and expand into new markets.
Lobbying and Advocacy: Engaging in lobbying and advocacy efforts can help shape trade policy and promote the interests of the automotive industry. The Alliance for Automotive Innovation, for example, advocates for policies that support automotive innovation and competitiveness.
Geographic Diversification: Spreading production and assembly facilities across different geographic regions reduces the company's dependence on any single market.
Investing in Technology: Automation, AI and machine learning can improve efficiencies and reduce reliance on manpower.

Conclusion: Navigating a Complex Future

Auto tariffs pose a significant challenge to Ford, Stellantis, and the entire US car manufacturing industry. By increasing costs, disrupting supply chains, and creating uncertainty, tariffs can undermine competitiveness and hinder long-term growth. However, by adopting proactive mitigation strategies, automakers can navigate the complex tariff landscape and ensure a successful future. Policymakers also have a crucial role to play in developing trade policies that support the automotive industry and promote fair trade.

The future of US car manufacturing depends on a collaborative effort between automakers, policymakers, and other stakeholders to address the challenges posed by auto tariffs and promote a thriving and competitive industry.