In the looming shadow of potential tariffs on Mexico and Canada proposed by Donald Trump, the Japanese automaker most vulnerable to the impact is Nissan. Trump's pledge of 25% levies, although uncertain, poses a significant risk for Japan's third-largest car manufacturer, especially as it is currently in discussions to merge with Honda.
While Toyota and Honda are better equipped financially to withstand the tariffs and adjust prices accordingly, Nissan faces a precarious situation due to its narrow profit margins in the automotive sector. The models Nissan manufactures in Mexico, such as the Sentra and Kicks, cater to budget-conscious consumers who may struggle to absorb price hikes resulting from the tariffs.
According to James Hong of Macquarie, Nissan's operating profits could be completely eroded without strategic intervention, like redirecting Mexican-made cars to other markets or adjusting pricing strategies. With Nissan heavily reliant on Mexican production for nearly 27% of its U.S. sales, the impact of the tariffs could be severe compared to Honda (13%) and Toyota (8%).
The potential tariffs could fundamentally alter the landscape for Japanese automakers, traditionally positioned as cost-effective production hubs near the U.S. Nissan, a pioneer in Mexican car production since 1966, faces a critical inflection point as it navigates the challenges posed by the tariffs while contemplating a merger with Honda.
Despite the broader implications for the entire automotive industry, the setbacks faced by Japanese automakers do not go unnoticed by competitors like Hyundai, who stand to be less affected due to their absence in Mexican and Canadian production facilities. This complex scenario further complicates Nissan's merger with Honda and raises questions about the role of Mitsubishi Motors in the proposed partnership.
Given the ongoing industry upheavals and uncertainties, the timing of the tariffs could not be more unfavorable for automakers globally, as they grapple with shifting market dynamics and geopolitical factors.