Industry analysts suggest that these tariffs will likely lead to increased sticker prices, particularly for economy models that appeal to the most cost-conscious consumers. This poses a significant challenge for automakers, particularly Nissan, which relies heavily on the U.S. market and Mexican production. The company has already been grappling with declining sales and financial instability, making the tariff imposition an even greater hurdle.
In 2023, major Japanese automakers exported nearly 880,000 vehicles from Mexico to the U.S., according to Mexico's national statistics agency. Nissan accounted for over a third of this figure, exporting 327,000 vehicles, with the Sentra leading the way at 180,000 units. The Sentra, a compact sedan priced from $21,590, is a prime example of a model that could be hit hard by the tariffs.
Koji Endo, head of equities research at SBI Securities, explains the core reason behind Mexico's role in automotive manufacturing: "The reason cars are made in Mexico is because costs are cheap, allowing automakers to produce economy vehicles there. A lot of those cars being made in Mexico are models where it is difficult to raise the prices, or if you do, you can only raise the price by a little."
The financial impact of the tariffs could be severe. A Goldman Sachs report predicts that tariff-induced price hikes will lead to declines in both sales and operating profits for Japanese automakers in the current financial year. Mazda stands to suffer the most with a projected 59% profit reduction, followed closely by Nissan with an estimated 56% drop. Toyota and Honda, with their more diversified lineups, would see smaller declines of 6% and 8%, respectively.
For Nissan, the timing of these tariffs could not be worse. The automaker is already struggling in the U.S. due to an aging vehicle lineup and a lack of hybrid options. It has repeatedly slashed its profit forecasts, leading to a downgrade of its debt to junk status. Ivan Espinosa, Nissan's new CEO and a veteran of its planning division, has vowed to accelerate the company's vehicle development cycle in an attempt to regain lost ground. However, slow decision-making remains a significant issue, as evidenced by the collapse of merger talks with Honda earlier this year.
Nissan has declined to comment on its specific plans to handle the tariffs. Toyota, benefiting from a broader product portfolio that includes trucks and luxury vehicles, has stated that it will maintain "current operations for the time being" concerning pricing and tariffs. Meanwhile, Honda has indicated that it may restructure its production network and supply chain if tariffs remain in place long-term. The company is already shifting production of its next-generation Civic hybrid from Mexico to Indiana to circumvent potential tariff costs.
The Consumer Impact and Market Shifts
The real burden of these tariffs will likely fall on consumers. James Hong, head of mobility research at Macquarie, estimates that if automakers fully pass on the tariff costs, the effective price increase on affected vehicles could be around 20%, given that duties are calculated based on transfer prices rather than retail prices. For buyers of economy cars like the Sentra, already dealing with inflation and rising living costs, this could prove to be a significant deterrent.
Shifting production back to the U.S. is not a viable short-term solution for most automakers, as domestic factories are already operating at capacity. Instead, analysts predict that many consumers will "trade down"—either opting for less expensive models or turning to the used car market, which may also see price increases as demand shifts.
According to S&P Global Mobility, around 27% of Nissan’s U.S. sales originate from Mexico, compared to approximately 13% for Honda and 8% for Toyota. Nissan’s deep-rooted presence in Mexico dates back to 1966 when it became the first Japanese automaker to establish a manufacturing plant outside Japan. Since then, Toyota, Honda, and Mazda have followed suit, leveraging Mexico’s cost efficiencies to support their North American sales strategies.
Mexico has grown to become the leading exporter of goods to the U.S., shipping $476 billion worth of products in 2023, according to the International Monetary Fund (IMF). This marks a dramatic rise from 1966, when the country ranked sixth with just $824 million in exports. The automotive sector has played a pivotal role in this transformation, but with the new tariffs in place, its trajectory could be poised for a major shift.
Saved by the Yen
Japan's weak yen may prove to be a saving grace for its automakers, boosting profits when earnings from abroad are converted back into yen. Given that Japanese automakers plan their pricing strategies in multi-year cycles, vehicles imported into the United States are currently being sold at significantly higher yen-equivalent prices than three years ago when these pricing parameters were set, according to Seiji Sugiura, an analyst at Tokai Tokyo Intelligence Laboratory.
On Wednesday, the yen was trading at around 150 to the dollar, compared to 122 three years ago. "If this current level of around 150 yen to the dollar continues for a time, they can still make a profit even with 25% tariffs," Sugiura noted.
Automakers may also selectively raise prices on specific models rather than implementing blanket price hikes, suggested Ken Miyao, CEO of research company Carnorama Japan. Nissan, in particular, has drafted multiple strategic scenarios to navigate the evolving tariff landscape, according to CEO Espinosa.
Given Nissan’s precarious financial situation, it may be the first automaker to adjust prices, Miyao predicted. "Nissan may not have a choice and may have to raise prices first."
As the April 3 implementation date approaches, Japanese automakers face a stark choice: absorb the costs, pass them on to consumers, or restructure their supply chains. Whichever route they choose, the effects of these tariffs are set to ripple through the entire automotive industry, reshaping the landscape of car manufacturing and sales in North America.