US legacy automakers are broadly expected to bear the brunt of higher tariffs on Canada and Mexico.
Still, a Barclays analyst warns the extent to which these new levies could prove to be disruptive for the “Big Three” is being underappreciated.
Shares of Ford Motor, General Motors, and Stellantis have been under pressure after new tariffs took effect on Tuesday.
Both Canada and Mexico have since announced retaliatory tariffs on goods from the US.
What Trump’s tariffs mean for Detroit automakers
The Detroit automakers will have to make significant adjustments in terms of price increases and production plans to remain profitable amidst higher tariffs, says Barclays analyst Dan Levy.
Without such adjustments, “we estimate it [new tariffs] could wipe out effectively all profits for the D3 OEMs,” he told clients in a research note this week.
Year-to-date, the new government’s plans of raising taxes on imports from Canada and Mexico have resulted in a significant hit to shares of legacy car manufacturers.
Ford is down about 10% versus its year-to-date high, while Stellantis and GM are down more than 10% each. Still, Levy warned of “further volatility ahead … until there’s more certainty on the end outcome.”
Ford is relatively less exposed to Trump tariffs
Barclays sees Ford as less exposed to Trump tariffs compared to its peers GM and Stellantis.
Why? Because Canada and Mexico account for as much as 35% of their production in North America – and that includes their high-profit vehicles like trucks.
In comparison, Ford makes its high-profit vehicles in the US.
That said, it’s not like Ford Motor is entirely insulated from increased levies.
Trump tariffs will nonetheless have a significant effect on Ford as it relies on the two countries for automotive parts.
A 25% tariff could increase the overall cost of a vehicle that sources about half of its parts from Canada and Mexico by up to $3,500, according to Dan Levy.
Should you buy the dip in automotive stocks?
While the future looks rather grim for the Detroit automakers amidst higher tariffs on Canada and Mexico, the Barclays analyst sees a “buying opportunity” in the recent weakness in automotive stocks.
“Given the potential for significant disruption ahead if the tariffs stick, we believe it’s a reminder as to why tariffs of this magnitude are unlikely to stick,” he argued in his research note.
Like many, Levy expects the United States to use higher tariffs as a strategic tool to negotiate better trade terms with its two allies.
Other analysts seem to agree with Barclays on the legacy automakers considering the average price targets on all three continue to suggest significant upsides in their share prices from current levels.
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