Wall Street woke up to some red flags on Thursday as auto stocks and associated ETFs crashed after President Donald Trump announced a 25% tariff on foreign-made vehicles on Wednesday evening. The action, directed toward strengthening domestic manufacturing, shocked the industry, with automakers and auto-themed ETFs taking a hit.

ETFs that were tied to the automobile sector immediately felt the impact after Trump made his tariff pronouncement. ETFs focused on autos, particularly leveraged ETFs, had major falls as investors processed the effect of the increased vehicle expenses and the prospect of interference with the international supply chain.

Leveraged ETFs have the tendency to exaggerate market movements, and in this instance, they amplified the bearish pressure on the auto sector. The rout was especially vicious for funds following conventional carmakers, owing to their widespread use of imported parts and international production chains.

Auto ETFs In The Red

Auto-themed ETFs followed suit in the downward trend, with significant declines on Friday in leveraged funds:

Direxion Daily TSLA Bull 2X Shares (TSLL  ): -6%

This leveraged ETF is created to offer twice the daily performance of Tesla's (TSLA  ) stock. Since Tesla is exposed to global supply chains, the tariffs have caused uncertainty in terms of production cost and margins. Although Tesla's domestic factories provide some insulation, Chinese imported parts may still inflate production costs, resulting in the ETF's precipitous fall. TSLL's value inched up about 0.7% on Thursday, but was down 6.8% on Friday as of writing.

Fidelity Electric Vehicles and Future Transportation ETF (FDRV  ): -4.4%

In contrast to leveraged ETFs, FDRV is a traditional ETF that follows electric vehicle and transport-related stocks. It was relatively flat on Thursday but fell 4% on Friday at the time of publishing, as concerns regarding elevated costs and supply chain woes worsened in the EV industry.

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV  ): -9.8%

This ETF targets electric and autonomous car firms, which have many global supply chains. Although EV producers such as Tesla and Rivian initially benefited from their home-market manufacturing advantages, worries about sourcing parts and cost inflation caused EVAV's value to fall 1.5% on Thursday, dropping another 9.8% at the time of publication on Friday.

Impact On Consumers

Wedbush analysts noted a particular implication: increasing car prices. They estimated tariffs would increase the average vehicle cost by $5,000 to $10,000-a shift that could discourage consumers and tighten the industry even further.

Investors will be closely observing whether the market steadies or whether the auto sector continues to slip. With tariffs looming on the horizon and no apparent resolution, auto ETFs and automakers may experience continued volatility in the weeks ahead.