In March 2025, former President Donald Trump announced a 25% tariff on imported cars and auto parts, sending shockwaves through the global automotive industry. Tesla CEO Elon Musk acknowledged this impact, warning: “This tariff will affect Tesla as well. The cost impact is not trivial.”
■ Tesla: Made in the U.S., but Not Fully American?
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Although Tesla assembles all cars domestically, about 20-25% of its vehicle components come from Mexico.
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Musk stressed that tariffs directly raise Tesla’s costs, significantly affecting its operations.
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Tesla’s top-selling Model Y Long Range consists of approximately 25% Mexican components by value.
■ Supply Chain Challenges and Component Constraints
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In a letter to the U.S. Trade Representative (USTR), Tesla highlighted that despite efforts to localize supply chains, certain parts remain difficult or impossible to source within the U.S.
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Global supply chains involve parts crossing borders multiple times, and tariffs could result in immediate price hikes and supply disruptions.
■ Industry-Wide Concerns
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More than 50% of vehicles sold in the U.S. are imported, raising serious industry-wide concerns.
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Art Wheaton from Cornell University estimated that the tariffs could increase consumer prices by up to $20,000 per vehicle.
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German automakers warned that these tariffs represent a “fatal signal” that could hinder both U.S. and global economic growth.
■ Are Cars Actually ‘Made in USA’?
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Even seemingly U.S.-built vehicles often have substantial foreign content.
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For instance, the Cadillac CT5 is assembled in Michigan but nearly half of its components come from Mexico.
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The Ford Mustang Mach-E derives 78% of its value from Mexican components, with just 13% from the U.S. and Canada combined.
§ Conclusion: Tariff Impact Highlights Vulnerability in Global Supply Chains
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Despite Tesla’s significant U.S. production, the structure of its component sourcing means avoiding tariffs entirely is impossible.
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The broader U.S. auto industry, despite domestic manufacturing, remains vulnerable to international trade disruptions.
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Automakers worldwide will likely need increasingly complex strategies to navigate evolving trade policies.