The US auto industry is expected to be the biggest victim of increased tariffs against Canada and Mexico.
A Barclays analyst says that the impact of these levies on the “Big Three’ is underappreciated.
Ford Motors, General Motors and Stellantis shares have all been affected by the new tariffs that took effect Tuesday.
Canada and Mexico both announced tariffs in retaliation against US goods.
Detroit Automakers and Trump’s Tariffs
Dan Levy, Barclays’ analyst says that the Detroit automakers must make major adjustments to their production and price plans in order to stay profitable amid higher tariffs.
In a recent research note, he said that without such adjustments “we estimate [new tariffs] it could wipe out all profits for D3 OEMs”.
The shares of the legacy auto manufacturers have taken a major hit since last year as a result of plans by the new government to raise taxes on imported goods from Canada and Mexico.
Ford has fallen about 10% from its high for the year, Stellantis is down over 10% and GM down even more. Levy warns of further volatility to come until the final outcome is more certain.
Ford’s exposure to Trump tariffs is less than other manufacturers
Barclays believes that Ford is less vulnerable to Trump’s tariffs than its competitors GM Stellantis.
Why? Why? Because Canada and Mexico produce 35% of North American vehicles, including trucks.
Ford, on the other hand, makes their high-profit cars in the US.
Ford Motor Company is not immune to increased taxes.
Ford will still be affected by Trump’s tariffs, as the company relies heavily on these two countries to supply its automotive components.
Dan Levy says that a 25% tariff can increase the cost of an automobile whose parts come from Canada or Mexico to up to $3500.
Why should you invest in auto stocks at a discount?
The future may look bleak for Detroit’s automakers due to higher tariffs against Canada and Mexico. However, Barclays analyst believes that the recent decline in automotive stock prices is a good opportunity to buy.
In his research note, he said that “given the possibility of significant disruptions ahead if tariffs are imposed,” it was a reminder why such tariffs would be unlikely to last.
Levy, like many others, expects that the United States will use tariff increases as a tool for negotiating better terms of trade with its allies.
The average price target for all three automakers continues to indicate significant gains in the share prices of these companies from their current levels.
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