A Permanent Blanket 25% Auto Import Tariff Will Drive Car Prices Higher, Dampening Demand

US President Donald Trump announced a blanket 25% tariff on all auto imports, effective April 2, after the March 26 European market close. Thus far, the tariffs are said to be "permanent," apply to imports from all countries equally, and apply to both final vehicle imports as well as parts. Vehicles that meet the United States-Mexico-Canada Agreement trade terms will only have tariffs levied on the non-US parts. These tariffs are stated to be in addition to any other tariff that may come in the future. The share prices of US and Japanese automakers largely traded lower by midsingle digits on the news, and we expect the same from European automakers. As per our March 5 note, we expect a negative 20%-30% impact on our fair value estimates on a permanent tariff of this size. For now though, we leave our valuations unchanged as we assess the likelihood of tariff permanence and the impact of likely reciprocal actions by the European Union. There is enough margin of safety at current prices for investors, as shares trade at deep discounts to our valuations.