If there’s one thing I like, it is a challenge. With Tariffs being bounced around like a pickleball since January, we have been watching some specific industries like a hawk. One being the automotive industry. But it is not quite as predictable as we may think. Wednesday, President Trump announced a “permanent” 25% tariff on foreign imported automobiles and auto parts, effective April 2nd.
Who does this benefit? U.S. automakers.
Tesla (TSLA) and Rivian (RIVN) are two U.S. automakers that are 100% built in the United States, with some parts manufactured overseas. The impact of the tariffs on these automakers is insignificant compared to other well known U.S. car companies like Ford Motor Company (F) and General Motors Company (GM) which will take a hit with some parts being pricier to obtain. Note that some parts already fall under the USMCA (United States-Mexico-Canda Agreement) and as such are exempt from the new tariffs.
Stellantis (STLA) which has some of the old Chrysler brands (formerly part of the 'Big Three' automakers in the U.S.) is for the most part a European Company. If you recall My Two Cents back in January, we continue to avoid the automotive industry but have our eyes open to potential trades. Both TSLA and RIVN were up Thursday after the announcement, while F, GM, and STLA stocks were losers.
While TSLA can and is benefiting from this announcement, it remains volatile and currently easily manipulated for political purposes. While we are not looking to buy TSLA for the long term, we will continue to monitor it as it may be good for an occasional trade.
Who else may benefit from these new tariffs? Used Car Dealers.
There is one stock in particular we have been keeping our eye on the past few months and that is Carvana (CVNA). Carvana, for those not aware, is an online-only used car retailer. Customers can buy, sell, trade, and finance vehicles online which allows customers to find their perfect car from the comfort of their couch. And we all know how American’s love to shop online. Companies like CarMax (KMX) and AutoNation (AN) will also see some of these same benefits. Your first reaction may be, “but how do you test drive it, how do you know it drives well?” Luckily, CVNA offers a 7-day ‘love it or return it’ policy. But if you’re a saavy shopper like I am, you would go test drive the models you like and shop online for the exact car you want.
Yes, there are a few automakers mentioned above that can and will benefit from the tariffs, but we believe, CVNA and companies alike will benefit the most. They will soon have the best, most affordable, inventory of used cars that consumers (should) be flocking to in the coming months and years as every other car company is hit with a 25% tariff, which will ultimately be passed to the consumer. It will take years before automotive companies build their facilities in the U.S. and are able to produce cars for purchase ex-tarrifs.
Earlier this year, Amazon Auto (AMZN) has expressed interest in expanding their online presence to used car sales, citing an internal survey that reports an increased willingness to purchase cars online. Amazon is historically known for shaking up industries and targeting “early adopters”. If AMZN is wanting a piece of the used cars sales pie, I would be more intrigued in the potential for this industry if I were you. The potential for this decision to normalize online car sales is great and can in fact benefit CVNA, not necessarily hurt it. Similarly, eBay Motors (EBAY) is another marketplace for automobile parts along with new and used cars. That company is also set to benefit from the new normal in the automobile industry.
Consumers are becoming increasingly frustrated with and turned off by car salesmen who have become tougher to negotiate with and push a car on you that is not right for your needs. There is no easier, hassle-free solution to the problem in conjunction with increased pricing due to tariffs than buying a used car online. You are able to see every maker and model all in one place, opening your eyes to all your options. This will take some time for consumers to adopt, but eventually more and more people will be turning to the web to find their perfect car.
Luckily, I was in need of a new car last June. If you know me well enough, you know I researched cars for weeks and had an excel spreadsheet analyzing each contender. While I did not end up purchasing from CVNA, I did use it as a research tool and would have considered it had I not found the perfect 2023 Hyundai Santa Fe demo with less than 4,000 miles and $10k off sticker price. Boy, am I happy I did not wait another year to trade my car in.
Don’t let the purchase of a new or used car negate the fact that these import tariffs will still affect your current car ownership. We will still see increased prices in parts to fix current cars. So that begs the question, will it be more costly to fix cars than it would be to just buy a lightly used one? Will the used car market become inflated and overpriced just as it did post-COVID? We will see in the coming year how these tariffs ultimately effect the used car market going forward but we predict this is the beginning of a shift in how consumers purchase their next vehicle.
Disclosure: At the time of this commentary Carly Rothbort, her family and/or clients of LakeView Asset Management, LLC were long AMZN, EBAY and CVNA - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situations.
Carly Rothbort is the Vice President at LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ.
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