German automakers have the most to lose as Trump tariffs hit. Their share prices say as much

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Many well-off Americans would not be caught dead in a Buick, a Chevrolet or a Dodge. They want luxurious, high-performance Teutonic iron – BMWs, Mercedes and Porsches.

They can still get them under Donald Trump’s tariff-mad regime, but those cars will cost a lot more, turning a few models into insanely priced indulgences. On Wednesday night, the U.S. President slapped 25-per-cent tariffs on all foreign-made cars. The German car industry will get hit hardest.

All the main German automakers, save Porsche, have assembly plants on U.S. soil. But those plants cannot meet American demand; exports fill the gap. In 2024, according to the U.S. Commerce Department, the United States imported almost 450,000 cars, valued at US$24.8-billion, from Germany. Collectively, imports from the next four top European manufacturers for the American market (Slovakia, which is full of car plants owned by the big manufacturers, Sweden, Italy and Austria) came to half the German tally.

The German auto industry, which had been a wealth and prestige machine for decades, is about to meet its judgment day. Sales in Europe have flatlined in recent years and are still well below their prepandemic levels. To make up for the sluggish European market, Germany pushed hard in China and became a market force there. But German sales in China are now plummeting as local competitors such as BYD come on strong. BMW’s sales in China fell 13.4 per cent in 2024.

But never mind – U.S. sales were strong, and the mighty American buyer would save the day. Then came Mr. Trump and his tariff war. Now the U.S. market is set to go into reverse for the German automakers, as well as those in Canada, Mexico and Japan. The stock market says as much.

In the belief that Mr. Trump would unleash a global trade war, the share prices of German car companies have been in steep decline for weeks, deepening their year-on-year losses. On Thursday, BMW was down 2.3 per cent, for a 12-month decline of 27 per cent; Mercedes was down 3.4 per cent, taking the 12-month loss to 24 per cent; and Porsche was hit particularly hard, losing 4 per cent Thursday, taking the one-year sell-off to almost 50 per cent. Volkswagen fared a bit better, though still had a losing week and year.

Bloomberg Intelligence said the new tariffs could eliminate a quarter of the projected 2026 operating earnings of Mercedes and Porsche, equivalent to US$3.7-billion. How will the German car companies survive the profit margin crunch?

Knowing that Mr. Trump is mercurial, they could gamble that the tariffs will have a short shelf life. His strategy has been erratic. Tariffs are announced, then delayed, downgraded or threatened afresh. But the German automakers would be foolish to assume the exercise in confusion will be similar this time. Mr. Trump said the new auto tariffs are “permanent” and that if the European Union and Canada “work together” to retaliate, they will get hit with tariffs “far larger than currently.”

He wants foreign car companies to build factories in the United States, using the tariffs as punishment if they do not. While South Korea’s Hyundai and a few other car companies with U.S. plants have said they will expand their operations in the United States, those plans almost certainly predate the tariff onslaught. It’s highly unlikely that German automakers will build new plants. Why would they commit billions of dollars when regulations and taxation under the Trump administration can change in an instant, with no warning?

The safer option is to gamble that Mr. Trump won’t be around in four years and that the next administration will unravel his trade-war legacy. Mr. Trump might even do it himself if the tariffs stoke inflation, reduce choice for consumers – some foreign automakers may withdraw low-margin models – and infuriate the very workers who voted for him.

The German automakers cannot win – but they cannot afford to lose the United States, their biggest export market, now that China is no longer coming to the rescue. So they will probably eat the tariffs, meaning their sales and profit margins will shrink, while they devise ways to minimize the damage and pray for a tariff hater to win the next election.

New business plans have no doubt been under consideration since Mr. Trump won the election.

The German car companies will cut costs, because they have to, and possibly shrink the range of models they sell in the U.S. The slow-selling ones will be the first victims. They might raise prices, as Ferrari said it would – by as much as 10 per cent – in response to the tariffs. They might boost the American-made content of their cars in the hopes of getting a tariff carveout, as vehicles imported from Canada and Mexico will get because of their U.S. parts. They probably will go more up-market, catering to rich buyers who covet premium German brands, like Porsche, at any price. The German automakers may even share development costs on, say, electric vehicles.

The question for investors is whether the sell-off already discounts the new tariffs. In other words, could the worst of the share price decline be over already? That’s impossible to say, since retaliatory tariffs by the EU would almost certainly be matched by new U.S. tariffs, turning the trade war into a frenzy of fear and loathing. With Mr. Trump, anything is possible. The tariff war may have reached its peak – or it may just be getting started.