How Will Tariffs Affect Auto-Manufacturer Stocks? 

As stock markets enter Trump 2.0, volatility returns to the markets. Potential import tariffs promised by the new US President could bring both positive and negative effects on the stock market.  

Global car manufacturers are one group that will certainly feel the effects. Import tariffs increase production costs for automakers, potentially affecting profit margins and leading to higher vehicle prices for consumers. German car manufacturers have expressed concerns that these tariffs would adversely affect US consumers and the broader industry. 

In November, Trump pledged to impose a 25% tariff on all imports from Mexico and Canada, with potential implementation by February. Tariffs could disrupt the North American auto industry’s interconnected supply chains, particularly affecting US automakers like GM and Ford, which rely on exports from Mexico. ⁽¹⁾ 

Tariffs could increase vehicle costs, potentially reducing consumer demand, but might also encourage automakers to focus more on domestic production in line with Trump’s ‘America First’ rhetoric. 

Trump Removes EV Mandate ⁽²⁾ 

President Trump has signed an executive order rolling back the previous administration’s targets for electric vehicle (EV) adoption, including the goal for EVs to make up 50% of new car sales by 2030. This policy shift also threatens to eliminate federal tax credits for EV purchases and freeze unspent funds allocated for EV charging infrastructure. This move could disrupt the growth of EV adoption. 

Loosening emissions regulations could reduce compliance costs for traditional automakers in the short term but introduces uncertainty for those heavily invested in EV development. Trump’s policy change also aims to revoke California’s zero-emission vehicle mandate and reconsider rules for EV sales, potentially slowing EV adoption and creating regulatory inconsistencies, similar to actions taken during his first term. 

Trump’s policy changes halt the disbursement of unspent funds, including $5 billion allocated for EV charging infrastructure. This freeze impacts the expansion of the US charging network, which had gained momentum under the Biden administration.  With no further government support, the EV charging industry may face significant challenges. 

Trump also aims to remove the $7,500 EV tax credit, a key policy under the Inflation Reduction Act aimed at boosting clean energy adoption. While not opposed to EVs, Trump is against subsidies for them, arguing that they are expensive. This move could make EVs less affordable for consumers, potentially slowing adoption in the United States. 

Despite these policy changes, the EV sector remains the fastest growing in the automotive industry, with companies like Tesla dominating the market. While legacy automakers like Ford and General Motors face challenges from the removal of tax incentives, Tesla has outgrown the need for such support. Critics warn that these rollbacks could hurt US competitiveness in the global automotive market, where regions like Europe and China continue to push forward with electrification. 

Ford & GM 

President Trump’s recent trade policies, including the proposed 25% tariffs on imports from Mexico and Canada, have raised concerns for US automakers like General Motors and Ford.  

These tariffs could increase production costs, potentially leading to higher vehicle prices and reduced consumer demand. Analysts estimate that such tariffs might add approximately $3,000 to individual car prices, potentially reducing sales. ⁽³⁾ 

However, some analysts view the rollback of stringent emissions standards and the potential elimination of federal tax credits for EVs as beneficial for domestic automakers. 

GM’s stock rating was upgraded to “Buy” by investment banks, citing the company’s restructuring efforts and the favorable policy environment under the current administration. Analysts noted that GM’s strategic moves, such as restructuring in China and significant share buybacks, position the company well to capitalize on the evolving trade and regulatory landscape. ⁽⁴⁾ 

How will European Carmakers Feel the Effects? 

European automakers are expressing significant concerns regarding President Trump’s proposed 25% tariffs on imports from Mexico, which could impact their operations.  

Volkswagen, for instance, operates a substantial manufacturing facility in Puebla, Mexico, producing nearly 350,000 vehicles annually for US export. The company has warned that such tariffs could severely affect its ability to compete in the US market, potentially leading to higher vehicle prices and reduced consumer demand. ⁽⁵⁾ 

Similarly, German carmakers, including BMW and Mercedes-Benz, have expressed concerns that these tariffs would increase car prices for US consumers and negatively impact the global automotive industry. Hildegard Mueller, President of Germany’s VDA Auto Association, emphasized that the tariffs would drive up US inflation, contradicting Trump’s campaign promise to reduce it. ⁽⁶⁾  

The European Union has vowed to respond proportionately to any tariffs imposed by US President Trump, aiming to defend its economic interests while maintaining strong ties with the United States. Despite a trade surplus in goods with the US in 2023, the EU faces potential harm from Trump’s threatened selective tariffs. ⁽⁷⁾ 

European Central Bank President Christine Lagarde has urged Europe to prepare for these tariffs, warning of economic consequences such as higher inflation and reduced trade. She also advocated for removing internal trade barriers within Europe to strengthen the market without resorting to protectionism. ⁽⁸⁾ 

Conclusion 

The impact of President Trump’s trade and regulatory policies, including proposed tariffs on imports from Mexico and Canada, presents both challenges and opportunities for global automakers. US companies like Ford and General Motors may face higher production costs and reduced consumer demand due to increased vehicle prices.  

However, the rollback of emissions standards and elimination of EV tax credits could benefit these companies in the short term, despite long-term uncertainties in the EV market. 

European automakers, including Volkswagen, BMW, and Mercedes-Benz, also face potential price increases and reduced competitiveness in the US market. Meanwhile, the European Union and its officials are preparing for a proportional response to Trump’s tariffs, stressing the importance of maintaining strong economic ties while addressing the economic risks of such policies. 

Sources: ⁽¹⁾ ⁽⁵⁾ ⁽⁶⁾ Reuters,  ⁽²⁾Nasdaq, ⁽³⁾ ⁽⁴⁾ Barron’s, ⁽⁷⁾ ⁽⁸⁾ CNBC 

The information provided is not intended to serve as investment advice or a sufficient basis for making investment decisions. It is meant solely for informational purposes.

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