By Al Root
Car stocks, including Tesla shares, were volatile on Monday.
Tariffs are the reason.
Over the weekend, President Donald Trump went ahead with his plan to put 25% tariffs on goods from Mexico and Canada.
Tesla stock was down 2.5% in premarket trading at $394.70. S&P 500 and Dow Jones Industrial Average futures were down about 1.4% and 1.2%, respectively. Ford Motor shares were down 3.8% at $9.70. General Motors fell 6.4% to $46.30.
Tariffs are particularly nettlesome for the auto industry. Millions of cars sold in the U.S. each year are assembled in Canada or Mexico, as Freedom Capital Markets analyst Mike Ward pointed out.
Tesla assembles all its vehicles for the U.S. market in the U.S., but car parts are a different story.
About 15% of the parts in a Model Y sold in the U.S. come from Mexico. Some come from Canada too, though the amount is hard to pin down. The North American auto industry groups Canadian and U.S. parts content together.
Roughly 30% to 50% of the parts for popular cars assembled in the U.S. come from outside Canada or the U.S., according to National Highway Traffic Safety Administration data.
Tariffs mean higher costs for the car companies and potential supply-chain issues. That likely translates into more volatility for investors as they work through what it means for demand and profitability.
"This was done through the International Emergency Economic Powers Act (IEEPA) because of the major threat of illegal aliens and deadly drugs killing our Citizens," Trump wrote on X. He has also said repeatedly that a goal of tariffs is to bring more manufacturing back to the U.S.
It's worth noting what the U.S. economy gets from trade: It's supposed to make things cheaper, better, and more plentiful. In the case of cars, consumers opted for better.
The North American Free Trade Agreement was signed in 1992. At the time, the Ford F-150 pickup truck was priced starting at just over $10,000. Now the entry-level F-150 costs about $37,000.
That's an average annual price increase of about 4%. Household income has increased by about 3% annually over that span. So the F-150 got a little more expensive, relatively speaking. But it also got a lot better. The 1992 pickup truck had a 4.9-liter engine putting out 145 horsepower and getting about 14 miles a gallon. The towing capacity was about 7,500 pounds. The 2024 F-150 has a 2.7-liter turbocharged engine putting out 325 horsepower and getting about 20 miles a gallon. It can tow closer to 14,000 pounds.
Without trade, cars would still have gotten better, or cheaper, but by exactly how much is hard to say.
Coming into Monday, Tesla stock has been flat so far this year. Ford shares have risen about 2%. GM stock had fallen about 7%. The S&P 500 has gained almost 3%.
GM shares dropped almost 9% after reporting fourth-quarter numbers last week. Financial guidance for 2025 was better than expected, but GM didn't quantify the impact of tariffs on guidance. That shook investor confidence.
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.
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February 03, 2025 06:33 ET (11:33 GMT)
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