Here's How Tariffs Could Affect This Industry Giant. Should Investors Be Worried?

It appears the tariff-prompted economic crisis has been averted. Mostly. For the time being anyway. On Wednesday, the White House paused most of its recently imposed (or raised) "reciprocal tariffs" for a span of 90 days. Presumably, these pauses could become permanent if the country in question can work out a satisfactory import/export tariff agreement with President Donald Trump.

There are three key exceptions to the reprieve, however. Many goods made in Canada and Mexico will still cost their suppliers an additional 25% to import into the United States, while China's tariff rate on a wide range of goods coming into the U.S. is now in excess of 100% of their cost.

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Neither superpower seems interested in backing down on their political posturing either.

This dynamic of course raises questions for domestic companies that rely on goods made outside of this country, including major carmaker Ford Motor Company (NYSE: F), which sources many of its vehicles' parts from the aforementioned three countries. How is it positioned to hold up in the midst of this complicated mess?

Higher prices on the horizon

The rhetoric is grim to be sure. As Wedbush analyst Dan Ives recently noted, recently imposed tariffs -- the ones still in effect -- on imported automobiles as well as auto parts could pump the already frothy price of new cars up another $5,000 to $15,000 apiece. He concludes, "The winner in our view from this tariff is no one," suggesting the industry as a whole may simply be unable to find a profitable balance of cost and pricing power with these added costs in place.

And his worry is anything but unfounded. As the Motley Fool's own in-house research points out, based on mid-March's tariff rates, imported electrical components are now going to cost roughly 11% more, while automobile parts will cost manufacturers an additional 6%. Metal and rubber will cost an extra 4%.

None of these price hikes are enormous. But, given the car making business's relatively thin profit margins, the nickels and dimes can add up quite quickly. Ford is no exception to this industry norm.

The company is something of an exception, however, in terms of how and where it gets and sells its vehicles.

Better shielded from tariffs than you think

It's a global company to be sure. But, not nearly as much as you might think.

Over half of the automobiles that Ford makes in any given year are sold in the United States, while roughly 80% to 90% of these cars are also made domestically. China, conversely, only accounts for a little over one-tenth of the Detroit company's business. Tariffs hardly put the company in dire straits, coming or going.

That doesn't mean it's completely protected from their impact, to be clear. Although most are assembled here, data from the National Highway Traffic Safety Administration indicates that only about 40% of its cars' components are actually made in the U.S. Roughly another 20% of these parts come from Mexico or Canada. The rest come from elsewhere, and while it's difficult to pin down a specific figure, certainly some of those components are made in China.

On balance though, Ford is widely regarded as being far more shielded from tariffs than other big names in the automotive industry including General Motors (NYSE: GM), which imports about half of the vehicles it sells within the United States. Indeed, while he'd clearly rather not be forced by circumstances to adapt the company's strategy -- or highlight the point -- in a recent interview Ford CEO Jim Farley argued that the new tariff paradigm actually presents "an opportunity to gain some business."

But aren't a slew of electric vehicle batteries made overseas, and in China in particular? They are. For better or worse though, Ford's EV business remains relatively tiny, at only about 2% of its total revenue. That's a non-issue for now as well as the foreseeable future.

Not a completely unreasonable bet

None of this necessarily means Ford is set to thrive here.

As was already noted, at Cox Automotive's recently calculated average sales price of $47,462, the cost of a new automobile is already prohibitively high. Making them even a little more expensive certainly won't help. And even if Ford isn't forced to raise its prices much, economic weakness just stemming from the broad impact of tariffs could still take a toll on demand for new cars.

Ford stock's 63% slide from its 2022 high to this month's new multiyear low, however, seems more than a little overdone in light of actual circumstances. Not only might the company emerge from this tariff mayhem even a bit stronger than where it started, but newcomers will be plugging into this ticker while its forward-looking dividend yield stands at roughly 7%. Plenty of investors have certainly taken crazier risks than the one Ford stock brings to the table right now.

At the very least, no, Ford's investors shouldn't worry to the point of panic.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.