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Stellantis, owner of GM, Ford and Chrysler, will be among the automakers hardest hit by Donald Trump’s promise to impose tariffs on imports from Mexico and Canada, analysts say.
The threat to the three largest U.S. automakers comes from the complex, cross-border supply chains that the global auto industry has developed over the past four decades.
Since Trump announced plans this week to impose 25 percent tariffs on imports from Mexico and Canada, executives and analysts have tried to assess the potential damage to an industry already facing to weaker demand for commodities. electric vehicles.
“While it is generally accepted that a 25 percent global tariff on any vehicle or content from Mexico or Canada could be disruptive, investors have underestimated just how disruptive it could be,” said Dan Levy, an analyst at Barclays.
Which global automakers are most exposed?
Mexico and Canada are important production centers for automakers that sell vehicles in the United States, meaning most of the world’s major automakers are vulnerable to the impact of tariffs.
About 40% of the cars and trucks Stellantis sells in the United States are imported from Mexico or Canada, according to Bernstein analyst Daniel Roeska. GM and Ford’s totals are 30 percent and 25 percent, respectively.
Unless companies take steps to mitigate the effect of the tariffs, Barclays estimates that the profits of the three Detroit-based automakers could be wiped out by the taxes.
Among European automakers, Volkswagen is the most exposed, with 45 percent of its U.S. sales coming from cars made in Mexico and Canada, although the U.S. market represents only a small share of revenue. group total.
Japanese companies Nissan and Honda also manufacture a significant number of cars in Mexico for export to the United States.
What could be the consequences for supply chains in Mexico and Canada?
Although tariffs on vehicles exported to the United States would be painful for the industry, analysts say the greater danger would be if the Trump administration also imposed tariffs on auto parts sent from Mexico and Canada.
James Picariello, an analyst at BNP Paribas, said tariffs on parts made in Mexico would be devastating. “I don’t think it’s economically feasible,” Picariello said. “Ultimately, it’s (the cost of tariffs) that has to fall on the consumer.”
Cars assembled in the United States rely heavily on parts from Canada and Mexico. According to National Highway Traffic Safety Administration documents, only 68 of the 141 models registered as having been assembled in the United States had domestically manufactured engines and transmissions.
The regulator’s figures also show that for 42 of the models, parts from Mexico accounted for more than 15 percent of the vehicles’ total component value.
Mexico’s customs declarations show the range of parts the country supplies to the U.S. market. About 35,000 reports covering $700 million in auto parts shipments were made during the last week of August, the most recent period for which data is available.
Compiled by data firm Export Genius, the filings reveal that U.S. manufacturers’ purchases include steering systems, parts for electric vehicle charging ports and armrests.
A separate set of value-added data, compiled by the OECD, shows that parts from Mexico and Canada account for about 10 percent of the value of cars assembled in the United States in 2020, with parts from China accounting for another 5.4 percent. .
Auto industry executives say Trump’s plans could force the industry to rethink its supply chains in other ways as well.
An official at a major Japanese automaker said the president-elect could use the threat of tariffs against Mexico and Canada to force automakers to stop using software and other technology made in China.
President Joe Biden’s administration has increased tariffs on Chinese imports This yearincluding a 100 percent levy on Chinese electric vehicles, when such vehicles accounted for just 1 percent of the U.S. electric vehicle market last year.
A ban on Chinese software would force Western and Asian automakers to find new suppliers for these technologies, a daunting challenge given the progress Chinese companies have made.
How could businesses mitigate the shock of customs tariffs?
Automakers could boost U.S. production, absorbing the financial shock by cutting costs or raising prices.
The “Detroit Three” have enough spare capacity in the United States to shift production from Mexico and Canada. However, this would represent a more costly and time-consuming exercise for European competitors.
Volkswagen may be able to shift some manufacturing to its new electric vehicle plant in South Carolina, where its Scout brand of vehicles is expected to be built. In contrast, BMW and Mercedes-Benz have little spare capacity at their U.S. factories.
“Automakers know how to cut (costs) and they have an incredible ability to come back from the brink,” said an executive at a European automaker.
“I think we are more resilient,” said Michael Leiters, chief executive of British supercar maker McLaren. But he added: “Clearly, protectionism and tariffs are not good for the economy at all. »
