Key Elements of the Tariff Adjustment

President Trump announced a significant modification to the new 25% auto tariffs on finished vehicles and parts. These tariffs will not accumulate with existing steel and aluminum duties, providing manufacturers relief. Additionally, automakers will be reimbursed for previously paid duties, limited to a maximum of 3.75% of a vehicle’s value for one year.

Impact on the Auto Industry

By shielding domestic producers from excess levies, original equipment manufacturers can stabilize their production costs and margins. Financial data indicates that U.S. automakers currently trade at roughly a 20% discount to their five-year average EV/EBITDA multiple—this discrepancy could narrow if cost pressures alleviate.

Next Steps for Supply-Chain Localization

• Supply-chain realignment: OEMs gain space to onboard more local U.S. parts suppliers without immediate financial pressure.

• Global negotiations: Further dialogues with China and the EU will determine if this relief can extend beyond the one-year limit.

• Commodity cost monitoring: Despite changes, steel and aluminum prices remain volatile and must be closely tracked.

This targeted relief should empower U.S. carmakers to transition towards more “Made in America” sourcing, enhancing near-term free cash flow and setting the stage for stronger valuations if they can maintain these cost savings.