President Donald Trump went through with his plans to impose a 25% tariff on imports from Mexico. This tariff, along with that on Canada (25%) and China (10%), goes into effect on Saturday. This move is expected to impact companies that rely heavily on Mexican car parts.

Automakers such as General Motors Co GM export vehicles from its Mexican plant to North America, according to a Reuters report. The report also suggested that other U.S. auto manufacturers likely to take a hit are Ford Motor Co F and Stellantis NV STLA, which are among the top U.S. producers in Mexico.

Needless to say, ETFs focusing on the automotive sector are facing significant challenges. Here are three such ETFs that are in focus right now:

First Trust Nasdaq Transportation ETF FTXR: This ETF provides exposure to transportation companies, including major automakers and auto parts suppliers. Companies such as General Motors and Ford are part of its portfolio. According to a recent report by Statista, in 2024, “The number of light vehicles produced in Mexico reached nearly four million units, from which roughly 22.3% were produced by the American company General Motors.”

Firms such as Tesla, which announced a new plant in Nuevo León, Mexico, are among its holdings.

Global X Autonomous & Electric Vehicles ETF DRIV: Focusing on the future of the auto industry, this fund includes companies involved in electric and autonomous vehicles. Ford is among the top holdings of this ETF.

iShares Self-Driving EV and Tech ETF IDRV: This ETF targets companies engaged in electric vehicles and self-driving technologies. It includes automakers and parts suppliers with operations in Mexico, such as Volkswagen, making it susceptible to the proposed tariffs. Notably, Volkswagen exported 109,735 light vehicles from Mexico to North America from January to July 2024, per the Mexican Automotive Manufacturers Association, as reported by Reuters.

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Impact Of The Proposed Tariffs

In November last year, Bernstein analyst Daniel Roeska wrote in a note that Volkswagen, Stellantis, General Motors and Ford would be the hardest hit. "A 25% tariff on Mexico and Canada would severely cripple the U.S. auto industry," he said.

An earlier report from the Associated Press said that General Motors imports approximately 30% of the vehicles it sells in the U.S. from Canada and Mexico. About 55% of their popular pickup trucks also are imported from Mexico and Canada. The bottom line of General Motors and other automakers are expected to be affected.

According to International Trade Administration, Mexico is the world’s seventh-largest passenger vehicle manufacturer, producing 3.5 million vehicles annually. Eighty-eight percent of vehicles produced in Mexico are exported, of which 76% come to the U.S.

The Deep Integration Of North American Auto Supply Chains

Decades of free trade have deeply integrated the automotive industries of the U.S., Canada, and Mexico. According to research from the Cato Institute, Mexico and Canada together account for nearly half of U.S. imports and exports of motor vehicles and parts.

This means that a tariff increase wouldn't just raise costs for American consumers and manufacturers — it could also trigger retaliatory actions from Mexico and Canada, potentially reducing U.S. car exports.

Also, vehicles assembled in Mexico often contain a high percentage of American-made components. A 2019 study found that nearly 74% of the foreign value-added in cars imported from Mexico came from the U.S. Another analysis from the Peterson Institute for International Economics estimated that 38% of the total value-added of vehicles imported from Mexico was American-made. If Mexico retaliates, this can spell bad news for the U.S. as well.

Simply put, slapping a 25% tariff on cars “made in Mexico” could inadvertently harm U.S. workers and businesses involved in supplying these vehicles.

The stakes of the disruption of an already intertwined supply chain is quite high. Investors invested in such ETFs should keep a close eye on developments, and keep in mind that the tariffs could weigh heavy on the profitability of the underlying companies.

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