U.S. President Donald Trump’s 25% tariffs on “all cars that are not made in the United States” is proving to be good news for the stocks of used vehicle dealers and automotive repair shops.
In early trading on March 27, the stocks of used car dealers Carvana (CVNA) and CarMax (KMX), as well as automotive parts sellers AutoZone (AZO) and O’Reilly Automotive (ORLY), are each up more than 3%. These stocks are surging while the share prices of automotive manufacturers are crashing, with the stock of General Motors (GM), the biggest U.S. automaker, down 7% on the tariff news.
Investors are clearly betting that Trump’s steep tariffs, which are being applied on top of duties that are already in place for foreign vehicles imported into America, will revive the used car market and convince consumers to keep their aging vehicles running longer.
New Car Prices to Rise
Politicians, pundits, and market analysts have been quick to point out that the new 25% tariffs will lead to a dramatic spike in new car prices even as they hurt the profit margins of automakers. In this environment, many analysts say that it will make the most sense for consumers to buy used cars.
UBS Group (UBS) analyst Joseph Spak went so far as to say that Trump’s new 25% tariff on cars and car parts could completely wipe out the profits this year of Ford Motor Co. (F) and GM. JPMorgan Chase (JPM) analyst Ryan Brinkman wrote that both GM and Ford face $82 billion in increased costs from the tariffs, which translates to roughly $5,000 more charged on each new car sold.
However, while the tariffs are being widely condemned for being damaging to automotive manufacturers, they are helping to lift the stocks of used car dealers and auto repair companies that cater to consumers and retail car owners. CVNA stock has risen nearly 140% over the last 12 months.
Is CVNA Stock a Buy?
The stock of Carvana has a consensus Moderate Buy rating among 15 Wall Street analysts. This rating is based on 10 Buy and five Hold recommendations assigned in the past three months. The average CVNA price target of $285.71 implies 36.27% upside from current levels.
