RPT-BREAKINGVIEWS-Carmakers’ US dreams turn to nightmare dilemma

By Katrina Hamlin

HONG KONG, March 28 (Reuters Breakingviews) - For carmakers, the American dream is no more. Donald Trump's promise on Wednesday to impose 25% tariffs on cars and parts presents companies with a nightmare choice: Swallow higher costs onshore or carry the burden of levies. South Korea's Hyundai Motor neatly illustrates why the pressure to double down in the U.S. might win out.

Just days before the U.S. president's executive order, the group, which includes both Hyundai Motor Co 005380.KS and Kia 000270.KS, and affiliate Hyundai Steel 004020.KS committed to invest $21 billion in the world's largest economy by the end of 2028. Last year, those three subsidiaries combined spent around $10 billion on capital expenditure globally, filings and data compiled by LSEG suggest. The plan will increase its manufacturing capacity in the U.S. market to 1.2 million vehicles. That could cover up to 80% of the group's total car sales in the country, from less than 40% last year, Moody’s estimates.

That’s risky. If U.S. trade policies reverse, the company will probably be stuck with higher bills for labour, parts and more, compared with those peers which continue to import from cheaper production hubs. But doing nothing is equally daunting. A 25% duty would on average add about $7,600 to an imported vehicle's sticker price, Jefferies estimates. Whichever way they turn, automakers will need to hike prices, accept lower margins, or both.

Hyundai's high-stakes bet is that the long-term trend towards moving auto production onshore in the U.S. will continue, and that the country will remain core to its overall business. The country ranks as Hyundai Motor Co and Kia’s largest and fastest-growing market. Hyundai Motor Co’s revenue in North America increased 16% in 2024 to more than $50 billion, twice the rate of its global sales.

America also is attractive as a rare place where carmakers can escape ultra-competitive Chinese brands, owing to existing U.S. tariffs and Washington's strict tech rules. The People's Republic in 2016 accounted for about a quarter of Hyundai sales, similar to North America; now it’s less than 5%. In the U.S., Hyundai’s market share was over 10% in the first quarter of 2025, besting Stellantis STLAM.MI, Cox Automotive estimates.

At least Hyundai has the option to expand an existing base onshore. Those companies which have yet to begin making in America, like Japan's Mitsubishi Motors 7211.T, would need to establish their own factory if they want to avoid tariffs. Building one can take around three years. Nonetheless, investors sent Kia and Hyundai Motor Co stock down around 4% on Thursday. Whatever decision carmakers make today will shape their fortunes for years to come.

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CONTEXT NEWS

U.S. President Donald Trump on March 27 announced his administration would impose a 25% tariff on imported cars and light trucks. The duties will be collected from April 3. Key automotive parts are also slated to be subject to tariffs, but on a date still to be specified, though “no later than May 3”, Reuters reported.

The Hyundai Motor group said on March 24 that it plans to invest $21 billion in the U.S. from 2025 to 2028. This includes $9 billion to expand Hyundai Motor Co and Kia’s local production to 1.2 million vehicles, $6 billion to increase the localisation of supply chains, and a $6 billion investment into new technologies, existing partnerships and energy infrastructure.