Key takeaways
- J.P. Morgan Global Research estimates the combined tariffs on vehicles and parts will be around $41 billion in the first year.
- This will rise to $45 billion in year two, and $52 billion in year three.
- In response, manufacturers are expected to increase localization of products in the U.S. and carry out low-single-digit price increases in the region.
- Automakers and consumers are expected to share the burden equally, with a projected 3% increase to new vehicle price inflation.
A patchwork of global auto tariffs
“A 15% tariff on auto imports from the EU represents a manageable year-over-year increase of 12.5% from the previous level. The effects can be mitigated in several ways.”
Jose Asumendi
Head of European Automotive Research, J.P. Morgan
A patchwork of autos tariffs is impacting the market and, in some cases, leading to an environment of increased uncertainty. Cars entering the U.S. are subject to a 25% import tax, and so are key auto parts including engines and transmissions. However, tariffs vary depending on individual trade agreements the U.S. has in place, making for a complex picture.
For Mexico — the largest importer of autos to the U.S. — and Canada, 25% tariffs are applicable to many auto parts, though discounts are available for products compliant with the United States-Mexico-Canada Agreement (USMCA). The U.S. has also reached trade agreements with Japan and South Korea, the second and third largest exporters of vehicles destined for the U.S. market, locking in tariffs of 15%.
The U.K. has secured a trade deal with the U.S. that reduces car export tariffs to 10%. But there is still uncertainty surrounding the implementation of autos tariffs on EU imports, where Germany and Italy are major exporters. A 15% tariff has been secured on autos and auto parts, but it’s unclear exactly when this will be implemented. “In our view, a 15% tariff represents a manageable year-over-year increase of 12.5% from the previous level,” said Jose Asumendi, head of the European Automotive team at J.P. Morgan. “The effects can be mitigated in several ways, including increased localization of products in the U.S. and some small price increases in the region.”
How are tariffs impacting auto sales?
“Trade deals with key partners such as the U.K., Japan, the EU and South Korea have led consumers to accept that auto tariffs are here to stay.”
Ryan Brinkman
Head of U.S. Autos & Auto Parts, J.P. Morgan Global Research
The annualized pace of U.S. auto sales has accelerated significantly, moving up from a seasonally adjusted annual rate (SAAR) of around 15.3 million in June to around 16.4 million in July, according to Wards Auto. “The acceleration in industry sales pace can be attributed to a number of factors, and tariffs are part of that picture,” said Ryan Brinkman, head of U.S. Autos & Auto Parts at J.P. Morgan. “We saw a waning ‘payback’ effect from earlier tariff-inspired pre-buys that pulled sales into March and April. But we are likely seeing another round of pre-buy activity in anticipation of future price hikes, which are likely to occur alongside the launch of 2026 model year variants. Trade deals with key partners such as the U.K., Japan, the EU and South Korea have led consumers to accept that auto tariffs are here to stay.”
US light vehicle sales
U.S. light vehicle (autos and light trucks) sales have been generally trending upward from the end of 2021. Sales hit 17.8 million in March 2025 and 17.2 million in April 2025 with tariff-inspired pre-buy activity, dipping to 15.6 million in May and 15.3 million in June, before climbing again to 16.4 million in July.
Source: U.S. Bureau of Economic Analysis
How much will auto prices increase due to tariffs, and who will cover the cost?
“For the most part, we see automakers and consumers paying the year one $41 billion tab.”
Ryan Brinkman
Head of U.S. Autos & Auto Parts, J.P. Morgan Global Research
J.P. Morgan Global Research estimates combined tariffs on vehicles and parts will be around $41 billion in the first year. This amounts to an increase of around $2,580 per vehicle — approximately 5.8% of the average retail price.
In year two, this will increase to around $45 billion, which is approximately an additional $2,806 per vehicle, and around 6.3% of the average retail price.
In year three, the total tariff impact is expected to be $52 billion — an increase of around $3,258 per vehicle, or 7.3% of the average retail price.
The impact of tariffs on vehicle costs
| Total impact | Increase in cost per vehicle | Percentage increase | |
|---|---|---|---|
| Year 1 | $41 billion | $2,580 | 5.8% |
| Year 2 | $45 billion | $2,806 | 6.3% |
| Year 3 | $52 billion | $3,258 | 7.3% |
Source: J.P. Morgan Global Research. The total impact represents the estimated tariff impact on U.S. light vehicle imports (finished automobiles) and auto parts imports, covering all OEMs and incorporating the change in tariff rate for Europe to 15%.
Analysis by J.P. Morgan Global Research points to automakers almost entirely compensating suppliers for any direct tariff costs incurred. “Dealer margins could compress some, and supplier margins may compress a little, but for the most part, we see automakers and consumers paying the year one $41 billion tab,” Brinkman said. However, there could be some difficulty or lag in passing along certain tariff costs, such as those buried deep within the supply chain.
Automakers and consumers are expected to share the burden equally, suggesting a 3% increase to new vehicle price inflation. This will hit consumers hard, especially as many are already struggling to afford new vehicles. The average transaction price (ATP) has grown 28%, pushing monthly payments up 34% since the start of the COVID-19 pandemic. In light of this, J.P. Morgan Global Research predicts sales will weigh in at around 15.5 million SAAR for the next three years. This is 3% lower than 2024’s SAAR of approximately 16 million.
How are manufacturers planning for future price increases?
Here’s what J.P. Morgan Global Research knows so far regarding manufacturer plans to deal with tariff-related price increases:
- Porsche has made incremental adjustments to the manufacturer’s suggested retail price (MSRP), ranging from 2.3–3.6% depending on the model.
- Audi is currently holding off price increases in the U.S. despite a 19% drop in vehicle sales during the second quarter, which is attributed to a tough economic environment and ongoing model changeovers.
- Hyundai Motor has been considering a 1% price increase for new U.S. models to offset tariffs, excluding cars already on dealer lots.
- BMW previously announced a mitigation effect of +3–4% MSRP on vehicles shipped from Mexico to the U.S. — while it subsequently kept prices stable, it more recently applied a +1.9% increase on new models.
- Toyota raised U.S. vehicle prices by an average of $270 from July, a 1% increase based on the best-selling RAV4’s starting MSRP. However, this was part of a regular pricing review and not a direct response to tariffs.
- Mercedes-Benz said it will not raise sticker prices on 2025 models despite tariffs.
- Volvo Cars’ CEO has stated that tariffs could hinder imports of more affordable models. Due to hefty tariffs on cars made in China, sales of the EX30 model were delayed in the U.S. market. Production has since started in Belgium, but the price has risen from the planned $35,000 to $46,195.
- Nissan promised to keep new car prices stable in the earlier part of the year, but costs are expected to rise in late 2025 or early 2026.
- Volkswagen will not raise new car prices amid consumer concerns over tariff impacts.
“Manufacturers will be increasing the localization of products in the U.S. and on the whole, we expect them to carry out low-single-digit price increases in the region,” Asumendi said. “In our view, European manufacturers should still be able to benefit from being net exporters from the U.S. into Europe as well as deducting a percentage of the value of the car made in the U.S. for any tariffs imposed on imported components.”
“For now, suppliers are likely to be almost entirely reimbursed by their automaker customers for any direct tariff costs incurred,” Brinkman added. “But automakers cannot expect similar treatment from their tapped out customers, likely leading to several hundred basis points of margin compression from variable costs rising in excess of price. Automakers and suppliers will both suffer fixed cost deleverage as a result of fewer units, given demand destruction.”
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