Impact of Trump's Tariffs on the Automotive Industry: German Manufacturers Face Significant Challenges

The recent imposition of tariffs by former President Donald Trump on imports from Mexico, Canada, and China has raised alarms within the automotive sector, particularly affecting German manufacturers.

On February 4, Trump announced a 25% tariff on goods imported from Mexico and Canada and a 10% tariff on those from China. This decision has significant implications for the automotive industry, especially for German automakers that rely on production facilities in Mexico to serve the U.S. market.

According to reports, approximately 90% of the automotive production in Mexico and Canada is exported to the United States. This creates a heavy reliance on these regions for major manufacturers, including Audi, BMW, Mercedes-Benz, and Volkswagen. Recent calculations by S&P Mobility indicate that around 5.3 million vehicles are produced in these facilities, with a substantial portion destined for American consumers.

In a study by the Canadian research group Trillium Network, it was estimated that major manufacturers like Ford, General Motors, Stellantis, Toyota Motor, and Honda produced about 1.3 million vehicles in Canada in 2024, primarily for the U.S. market. This showcases how intertwined the automotive supply chain is between these countries.

German automakers have invested heavily in Mexican facilities. BMW, for instance, is investing EUR800 million in its San Luis Potosí plant, which produces models such as the BMW 3 Series and BMW M2 for various markets, including the U.S. By 2027, the facility is expected to produce a new electric vehicle series, indicating a long-term commitment despite the recent tariff changes.

Volkswagen appears to be the most affected by these tariffs. Its Puebla plant in Mexico is one of the largest automotive production facilities in the country, with a production capacity of nearly 350,000 vehicles in 2023, including models aimed at the U.S. market. The company has also established a motor plant in Silao, Mexico, to support its U.S. operations, producing over 2,500 engines daily.

Similarly, Audi's facility in San Jose Chiapa, which produces the Q5 model, reported significant exports to the U.S., while Mercedes-Benz operates a joint venture with Nissan in Aguascalientes, producing vehicles for the North American market.

The automotive industry is now considering the potential for shifting production from Mexico back to the United States in response to these tariffs. Industry experts, including those from Advyce & Company, suggest that this could lead to a reevaluation of manufacturing strategies among many automakers, including domestic giants Ford and GM, which also have significant operations in Mexico.

Consumers in the U.S. are likely to feel the impact as well. According to Standard & Poor's, the average price of a car imported from Mexico could increase significantly due to the 25% tariff, leading to higher costs that are expected to be passed on to consumers.

In summary, the automotive industry is bracing for a challenging period as these tariffs take effect, with German manufacturers facing particular difficulties due to their reliance on Mexican production facilities for the lucrative U.S. market.