World Stock Watch

Tariff Threat Looms Over Auto Industry

The United States government has announced plans to impose a 25% tariff on imports from Mexico and Canada starting February 1, unless the two countries take sufficient measures to curb the flow of fentanyl into the US. This move could have significant implications for the automotive industry, as around 90% of auto exports from both Mexico and Canada are destined for the US market.

German Automakers Sound Alarm

German automakers, particularly Volkswagen, have expressed concerns about the potential tariffs, warning that they could lead to inflation for consumers. With a significant presence in Mexico, these companies are likely to be heavily impacted by the proposed tariffs.

Automakers Affected

Several major automakers have operations in Mexico and Canada, and would be affected by the tariffs. These include:

• Audi: Produces the Q5 model at its San Jose Chiapa plant in Mexico, employing over 5,000 people.
• BMW: Manufactures the 3 Series, 2 Series Coupe, and M2 models at its San Luis Potosi plant in Mexico, with nearly all output going to the US and other global markets.
• Ford: Operates three plants in Mexico, exporting nearly 196,000 cars to North America in the first half of 2024, with 90% going to the US.
• General Motors: Imported around 750,000 vehicles from Canada or Mexico to the US in 2024, with most manufactured in Mexico.
• Honda Motor: Sends 80% of its Mexican output to the US market, and has warned that it may need to consider shifting production if tariffs are imposed.
• JAC Motors: Assembles JAC brand vehicles via a joint venture with Mexican firm Giant Motors.
• Kia Corp: Produces vehicles at its factory in Mexico, including some Santa Fe SUVs for its affiliate Hyundai Motor.
• Mazda: Exported around 120,000 vehicles from Mexico to the US in 2023, but may reconsider further investments if tariffs are imposed.
• Nissan Motor: Operates two plants in Mexico, producing the Sentra, Versa, and Kicks models for the US market.
• Stellantis: Operates two assembly plants in Mexico, producing Ram pick-ups and vans, as well as Jeep Compass mid-sized SUVs.
• Toyota Motor: Builds its Tacoma pick-up truck at two plants in Mexico, selling over 230,000 units in the US in 2023.
• Volkswagen: Operates a large factory in Puebla, Mexico, producing over 350,000 cars in 2023, including the Jetta, Tiguan, and Taos models.

Auto Suppliers Also Affected

In addition to automakers, several auto suppliers would also be impacted by the tariffs. These include:

• Autoliv: Employs around 15,000 staff in Mexico, producing airbags and seat belts.
• Michelin: Operates two plants in Mexico and three in Canada, producing tires.
• Yanfeng: Supplies automakers including General Motors and Toyota from its plants in Mexico.
• Other suppliers: Italian tyremaker Pirelli, Italian premium brakes maker Brembo, and Italy’s Eurogroup Laminations, among others, also have operations in Mexico serving the US market.

The proposed tariffs have significant implications for the automotive industry, and could lead to increased costs and inflation for consumers. As the situation develops, it remains to be seen how automakers and suppliers will respond to these changes.