25% Car Tariffs to Hit Earnings in Q3, Worsen by 2026

Analysts have warned that the impact of the 25% tariffs on imported cars and auto parts proposed by former U.S. President Donald Trump will not be significant in the second quarter but will start to manifest in the third quarter. The delay in the actual cost impact is attributed to the buffer provided by inventory and parts in April, which will only start to show effects by mid-May. This impact is expected to accelerate during the third-quarter earnings season.

The tariffs, which were announced to take effect from April 2, are set to disrupt the global automotive industry significantly. The policy aims to impose a 25% tariff on all non-U.S.-assembled vehicles and key auto parts, which is expected to reshape the global automotive trade landscape. This move is anticipated to have a profound impact on major automotive players, including allies of the U.S.

The tariffs are expected to have a ripple effect across the supply chain, affecting not only vehicle manufacturers but also parts suppliers. The delay in the cost impact is due to the existing inventory and parts buffer, which will start to deplete by mid-May. This will lead to an acceleration of the tariff's effects during the third-quarter earnings season.

Analysts predict that the overall impact of these tariffs will become more apparent in the 2025 fiscal year, with the situation potentially worsening by the 2026 fiscal year. As short-term mitigation strategies lose their effectiveness, automakers' earnings could face an additional 20% hit unless they significantly alter their procurement sources.

The tariffs are also expected to have a significant impact on the global automotive industry, with Japanese automakers potentially facing the brunt of the impact. The policy is expected to disrupt the "wage-price virtuous cycle" in Japan, which has been driven by the automotive industry. This could lead to a scenario where Japanese automakers are forced to cut jobs and freeze wages to cope with the loss of profits.