Morgan Stanley: Tariffs to hit new vehicle prices hardest, auto parts resilient

Investing.com -- Tariffs on imported goods are likely to weigh most heavily on new vehicle prices, while aftermarket auto parts and home improvement products may prove more resilient, Morgan Stanley said.

The bank highlighted in a note on Monday that category-by-category analysis of monthly tariff levies shows “inflationary pressure should be highest in New Vehicles (+MSD% to +HSD% by year-end), while Auto Parts and Home Improvement [are] most resilient at an estimated ~4% inflationary tariff impact,” citing Department of Commerce Harmonized Trade System data.

Morgan Stanley noted that the monthly duties levied on imports have surged from a $6 billion run-rate before February 2025 to $28 billion in July, raising the effective tariff rate across all imported goods to 10%, compared with 2% earlier in the year.

For the top six imported goods categories, Aftermarket Auto Parts, Apparel & Accessories, Footwear, Furniture & Home Furnishings, Home Improvement, and New Vehicles & Parts, the effective tariff rate has climbed to 13% as of July, from 4% in February, with tariffs levied rising to ~$14 billion from $4 billion.

The bank said the unmitigated tariff burden ranges from +LSD% to +HSD% of retail value, “being lowest in Apparel & Accessories (at ~3%) and highest in New Vehicles & Parts (at ~7% of retail).”

This reportedly suggests that new vehicles are most vulnerable to demand destruction, with price inflation expected to build into the +MSD% to +HSD% range in the second half of 2025.

By contrast, Morgan Stanley expects aftermarket auto parts and home improvement to remain relatively insulated.

The bank noted that “required inflation in the ~4% range and low demand elasticity provide pricing power,” indicating these categories can better absorb tariff-related costs without significant impact on demand.

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