How Tesla Could Skirt Trump’s Tariffs While Everyone Else Pays Up

President Trump’s sweeping tariff changes have stirred up considerable economic uncertainty and confusion. Higher import duties will affect at least some products in virtually every industry, but some sectors face steeper consequences than others. Automakers, in particular, could struggle as regulators crack down on imported cars and parts, with the notable exception of Tesla, the electric car company led by close Trump confidant and DOGE master Elon Musk.

How exactly the tariff scheme will impact American auto companies remains uncertain, especially as the administration goes back and forth on these policies. However, should things play out as they currently stand, Tesla could largely avoid the high costs others will have to manage.

On March 26, 2025, Trump enacted a 25% tariff on automobiles and their parts. Another 10% baseline duty on all imports took effect in early April. This tax is still in effect as larger reciprocal tariffs on many nations remain in limbo amid a 90-day pause.

Notably, the car duty does not cover importers under the U.S.-Mexico-Canada Agreement, at least in part. The tax still applies to any “non-U.S. content,” so some Canadian and Mexican vehicles or components may still face higher costs. Cars made in the U.S. do have some relief. After negotiations with automakers, Trump’s new tariff scheme will reimburse automakers for U.S.-made vehicles up to 3.75% of the car’s value to offset the impact of material and parts duties. This reimbursement falls with each year, going away entirely in three years.

Any U.S.-made car with 85% domestic content will also be able to avoid parts tariffs entirely. However, many manufacturers don’t meet that standard. Notably, Tesla does.

Similarly, steel and aluminum from Canada and Mexico are exempt from the 25% tariff on those metals. U.S. automakers may still face higher import duties if they get these resources elsewhere, though, further raising supply chain expenses.

American automakers have begun to show concern over Trump’s tariffs, with Ford CEO Jim Farley saying, “a 25% tariff across the Mexico and Canadian border would blow a hole in the U.S. industry.” Others seem less stressed. GM CEO Mary Barra said the company could mitigate half the resulting costs, but that leaves another half to deal with.

There’s one car manufacturer that could avoid more than half of the impact of these tariffs. Tesla could benefit from the tax, as it would likely experience fewer price disruptions than its competition. It’s convenient timing for the EV giant, too, considering how Tesla stock fell by 43% between December 2024 and March 2025.

Tesla can get by relatively unharmed because much of its manufacturing is domestic. Elon Musk highlighted this aspect while repeatedly insulting Trump advisor Peter Navarro, saying, “Tesla is the most vertically integrated auto manufacturer in America with the highest percentage of U.S. content.”

Musk’s EV company manufactures all of its cars sold in North American markets at factories within the U.S. Most other domestic automakers get at least some inventory from international facilities. Consequently, even though Tesla may still feel the impact of tariffs on materials, it would suffer less than most—if not all—of its competition.

As cofounder of Boulder Progressives Eric Budd pointed out on Bluesky, the exemption for using 85% domestic content primarily favors Tesla. Budd called it “a tariff carve-out just for Tesla,” as few if any other automakers meet that standard.

Already having an established U.S. presence helps Tesla in the long run, too. Other automakers could try to avoid tariffs by reshoring their operations, but this is expensive and time-consuming.

As Auto Forecast Solutions vice president of global vehicle forecasting Sam Fiorani explained to USA Today, it “takes billions of dollars of investment with specialized factories and workers” to set up a modern car assembly line. The process also takes years to make a profit. As such, Tesla could enjoy relatively low prices while its competitors spend billions and take years to reach the same point.

Tesla faces major challenges even with a friendly administration. Consumers in the U.S. and abroad have not taken kindly to Musk’s association with Trump, and the ensuing backlash has hurt the company. Tesla’s profits dropped by a staggering 71% in Q1 2025 from a sales decline driven largely by its CEO’s rapidly falling reputation. Even Musk recognized this, taking the opportunity to distance himself from DOGE.

The effects of Trump’s tariffs on trade issues in other nations are worth considering, too. Tesla has already stopped selling the Model X and S in China after the country imposed a 125% tariff on U.S. imports. The loss of that market could hinder the benefits of its U.S. production, although other American automakers also have to grapple with the same tariffs.

It’s unclear exactly how Trump’s tariff scheme will play out. However, if the current import tax regime remains in place, Tesla has a clear edge over other automakers. It will take time to see how that impacts sales and vehicle prices.