To put the size of the U.S. car market in perspective: pre-tariffs, new car sales were projected at ~14 million; post-tariffs, I estimate they’ll fall to ~13.5 million.

As I dug into the impact of tariffs on U.S. auto sales, I was surprised by the percentage of vehicles sold in the U.S. that were imported. My outdated assumption was that most U.S. automakers built the vehicles they sold domestically, and that many Japanese carmakers had shifted production to the U.S. decades ago. In reality, imported vehicles still play a major role—accounting for about 45% of cars sold in the U.S. last year—driven largely by Japanese, South Korean, and European models manufactured overseas.

This is where the assumptions start to build. As mentioned, about 45% of vehicles sold in the U.S. would be subject to the 25% tariff. Manufacturers will likely pass on a portion of that cost to consumers. For simplicity, we assume that half of the tariff (12.5%) is passed through in the form of higher prices. Since the remaining 55% of vehicles are unaffected, this implies an average price increase across all cars of 5.6% (12.5% multiplied by 45%). Teslas would not be impacted by this part of the dynamic.

Next, there’s the impact on parts. For the 55% of vehicles manufactured domestically, roughly 30% of their inputs would be subject to the 25% tariff. This translates to an average cost increase of about 7%. If half of that increase is passed on to consumers, those 55% of vehicles would see prices rise by approximately 3.5%, resulting in a 1.9% increase across the overall market. Adding this 1.9% to the previously estimated 5.6% increase suggests a total average vehicle price increase of around 7%.

Tesla will be impacted by the tariffs on auto parts, which is expected to affect about 25% of its components. If half of that cost is passed to consumers, it would imply a 3% increase in vehicle prices. However, with higher auto gross margins ex-credits—around 14% compared to the industry average of 8%—Tesla is better positioned to absorb some of the burden. As a result, we estimate a more modest 2% price increase for Teslas in the U.S.

A 7% price increase for non-Tesla vehicles is likely to reduce overall new car demand by 3.5%, assuming a U.S. car price elasticity of -0.5—meaning a 1% price increase leads to a 0.5% drop in demand.

In contrast, Tesla demand in the U.S. would likely rise by about 2.5%, driven by a 5% relative price advantage compared to the broader market. That uplift translates to an estimated additional 20k to 25k Tesla deliveries over the next 12 months. Based on my current forecast of 1.7 million Tesla deliveries this year, the tariffs could drive a 1.5% increase in Tesla’s global volume.

Disclaimer