Foreign automaker stocks took a significant dip on Wednesday as fears of impending tariffs loomed large over the automotive sector. Investors are increasingly jittery as Donald Trump, the President-elect, has indicated plans to raise tariffs on imported vehicles, particularly those from China, Europe, and Mexico, where many major manufacturers have large operations.
During trading hours, shares of major European automakers plummeted, with the stocks of BMW and Mercedes-Benz dropping around 6.5%. Meanwhile, Porsche saw its shares decline by 4.9%, and Volkswagen experienced a 4.3% drop. Shares from U.S.-traded Chinese companies like Li Auto and Nio fell by 3.3% and 5.3%, respectively. Even BYD, which trades over the counter and isn’t listed on U.S. exchanges, took a hit, dropping 4.5%.
Trump has made no secret of his intentions, repeatedly stating he would impose higher tariffs on various imports, including new vehicles and trucks from prominent manufacturing nations. Although many major automakers operate factories within the U.S., they still depend heavily on parts and vehicles produced overseas to satisfy domestic demand.
Japanese automakers also braced for the impact as Toyota Motor's shares rose slightly, closing up less than 0.5%, but rival Honda Motor saw a troubling 8% drop amid concerns about upcoming earnings reports.
One of Honda’s executives, Shinji Aoyama, expressed serious reservations about how any increase in tariffs would affect their operations. Aoyama disclosed during Honda's earnings call, "That is a big impact. It is not just Honda. All of the companies are subjected to the same situation. And, in short, I wouldn't think the tariff will be imposed soon." He also hinted at the possibility of shifting production operations to other regions if tariffs push costs too high.
Most major automakers have made significant investments in Mexico, lured by lower production costs compared to the U.S. and Canada. Under past trade agreements like NAFTA, and its successor, the United States-Mexico-Canada Agreement (USMCA), the trend of moving production to Mexico has only accelerated.
Critics on both sides of the aisle, including Trump and Democratic leaders, have voiced concerns about certain clauses of the USMCA and their effectiveness, particularly with regards to companies like BYD aiming to set up manufacturing plants just across the border to supply the American market. "They think they're going to make their cars [in Mexico] and they're going to sell them across our line and we're not going to charge them tax," Trump said during one of his addresses on tariffs. He hinted at his intention to impose hefty tariffs, speculating about rates around 200%, effectively rendering such vehicles "unsellable" within the United States.
Despite the fervor surrounding potential tariffs, many analysts have expressed skepticism toward Trump's high numbers. During his first term, he proposed up to 25% tariffs on imported vehicles, which never fully materialized. Emmanuel Rosner, an analyst with Wolfe, noted, "To be clear, we do not expect aggressive new tariffs under a possible Trump administration. The challenge for investors will be around rhetoric, especially with the USMCA up for renegotiation in 2026. Trade uncertainty could weigh on auto stocks broadly, as we saw from 2018 to early 2020 during the height of the US-China trade war and NAFTA negotiations."
Similarly, John Murphy from BofA predicted, "We anticipate tougher approaches to trade and tariffs. Although we believe policy changes will be milder than announcements to minimize business disruption." This cautious outlook reflects widespread uncertainty as automakers navigate the prospect of changing trade rules and economic fallout.
All these developments have raised concerns among automakers about their operational costs. With many companies relying on their Mexican plants for significant production, there’s never been a more pivotal time for stakeholders to reconsider their strategies. Will they shift operations, absorb costs, or find other avenues to mitigate the potential impact?
Overall, market analysts are keeping their fingers on the pulse as the automotive sector appears to be at the mercy of governmental policy swings. The entire auto industry will remain on high alert as the potential for new tariffs looms large, threatening the delicate balance the industry has maintained since the USMCA was enacted. Whether Trump's rhetoric will match reality remains to be seen, but the stakes have never been higher for the auto industry vulnerable to the whims of trade negotiations.
