Sticker Shock: Tariffs & Prices

While much remains fluid around the final timing and structure of the proposed tariffs, one point has become clear - they have the potential to raise the price of new vehicles for US consumers substantially. Tariffs on vehicles made in China have already increased from 27.5% to 37.5%, with the potential of an additional 10% shortly. However, since vehicles produced in the country accounted for roughly 1.4% of new inventory at the end of February, the impact will likely be muted. Far more impactful would be tariffs on Canada, the European Union (EU), and Mexico, which accounted for 4%, 6.8%, and 18.4% of inventory at the end of February, respectively.

How large could the impact be? For Canada, a 25% tariff would add nearly $12K to the current $46.6K new car price, while for Mexico, it would add nearly $10K to the current $39.2K new car price. With these tariffs - plus the 25% tariff proposed on the EU and a cumulative 20% increase on Chinese-made vehicles - the average list price of new vehicles in the US could increase by over 7%, from $49.8k to $52.5k.

Vehicles built in the US, which were once considered a safe haven, are also likely to be affected by tariffs on several fronts. The 25% tariffs on steel and aluminum imports, expected to go into effect on March 12, could increase the cost of domestically built vehicles. Additionally, since automotive parts often cross borders multiple times before being assembled into a final product, the 25% automotive tariffs proposed to go live in April could further elevate costs.

While the direct impact of tariffs will fall on new vehicles, the used vehicle market could also be affected. Elevated prices for new vehicles might drive consumers to the used car market where increased demand could drive up prices. Also, costlier automotive parts could lead to higher ownership costs and rising auto insurance rates.

We’re likely to see minimal impact on the industry if tariffs are enacted for a short period (e.g. 3 months), as new inventory levels are quite robust (at a market days’ supply of 84 at the end of February) and consumers are likely to have access to a solid selection of pre-tariff vehicles. We can also expect automakers and suppliers will adopt a wait-and-see approach before making significant changes.

The industry is expected to be most impacted if these policies are in place for a medium-term (4 - 24 months), as the bite of tariffs could dent new sales while the industry looks for ways to adjust, potentially by moving more automotive production to the US. After two years, the industry would likely adapt to the tariffs, and we’d see prices start to stabilize, albeit at a higher-than-pre-tariff level.

Used Auto Sales in Full Bloom

Used retail sales continue to blossom in 2025. The CarGurus Used Vehicle Demand Index was up 1.4% year-over-year and 4.0% month-over-month; these values are even more impressive considering last February included a bonus Leap Day and this February had 3 fewer days compared to the prior month.

Shoppers have been welcomed by a larger array of vehicles than in years past, with CarGurus Used Vehicle Availability Index readings up 4.2% year-over-year and 13.2% from February 2023. In addition to more selection, consumers are also seeing declines in vehicle prices, with the average list price of used vehicles declining 2.2% year-over-year to $27.7k. However, used prices appear to have hit their low point and are rising seasonally as demand increases ahead of tax refund season.

Speaking of tax refunds, they are looking positive through the week of Feb 21, with average refund amounts rising 7.5% YoY to $3,453. The market is now potentially positioned for a very strong March with a healthy supply of vehicles, attractive prices, rising tax refunds, and robust consumer demand.

Used Prices Are Drifting-Is It the Market, or Is It Tesla?

The used EV market is evolving rapidly, with average list prices dropping nearly 5% over the past year and a staggering 47% from the peak in June 2022. However, we're now seeing a split in the used EV market, as more non-Tesla models flood in and Tesla's once-bright halo starts to dim.

Though Tesla's share of used EV listings has stayed relatively stable, their share of total used EV sales has declined from nearly 49% in February 2024 to 43% in February 2025 as more EV options have entered the market. That translates to Tesla’s sales increasing by 17%, while non-Tesla EV sales have surged nearly 50%.

Price cuts on the new side and an influx of former fleet vehicles have caused the average list price of a used Tesla to drop 8% since February 2024. In contrast, non-Tesla EVs have seen a smaller decrease of 3.5%. Breaking price adjustments down further over the same period, the Model 3's price has fallen 13% to $23.8k, the Model Y is down 15% to $30.6k, and the Model S has dipped 7% to $31k.

While Tesla still commands significant attention in the used EV market, the landscape is shifting as non-Tesla models gain traction. This diversification is driving overall growth and providing more options for consumers. As prices continue to fluctuate, it will be interesting to see how market dynamics evolve and whether Tesla can maintain its strong presence amidst growing competition.