Auto Stocks Tumble as Tariff Tensions Mount; Investors Turn to Dealers, Domestic Producers

A sharp rise in tariffs has hit the auto industry hard, dragging the S&P 1500 Automobiles and Components Index down nearly 40% this year. The 25% tariff, introduced by the Trump administration, targets cars and auto parts imported into the U.S., with credits for domestically produced components. The policy aims to boost U.S. production, but it has brought short-term turbulence for automakers, suppliers, and investors.

Imported vehicles, which made up about half of U.S. sales in 2024, are now significantly more expensive, with average prices nearing $48,000. In response, several automakers have implemented import surcharges, paused production, raised prices, and announced layoffs. Fewer dealer incentives and longer car ownership cycles are expected as a result.

Amy Ge, manager of the Fidelity® Select Automotive Portfolio (FSAVX), is leaning toward U.S. auto dealers and parts retailers, citing their relative insulation from direct tariff impacts. She believes used car prices may remain high due to tighter new car supply, benefitting dealer margins. Ge also notes that domestic electric vehicle (EV) makers and luxury brands with in-country production may have a competitive edge under current policy conditions.

While some industry players are adjusting to the new landscape, many face ongoing uncertainty as the full impact of tariffs, trade negotiations, and possible exemptions remains unclear. Investors are advised to prepare for continued volatility across the auto sector.

Source: www.fidelity.com