MW Why GM, Ford stocks are falling after Trump's tariff plan for Mexico and Canada
By Tomi Kilgore
Tariffs on imports of auto and auto parts from Canada and Mexico seen cutting sales by more than 1 million vehicles, Baird says
Shares of General Motors Co. and Ford Motor Co. were falling in early Tuesday trading, as president-elect Donald Trump's new tariff threat fueled concerns that a "meaningful" number of auto sales will be lost.
Late Monday, Trump posted on his Truth Social social-media platform that on his first day in office he will issue an executive order to impose a 25% tariff on all products imported from Mexico and Canada.
The reason that U.S. automakers, like GM and Ford, will be hurt by those tariffs is that not only are some autos made in Mexico, even autos made in the U.S. will be impacted as a number of parts that make those vehicles are imported.
"The economic impact on the auto industry (and suppliers) is set to be meaningful, likely driving a near-term selloff in the stocks and making it difficult to invest in the space near-term (set against already-challenging sentiment)," Baird analyst Luke Junk wrote in a note to clients.
GM's stock $(GM)$ slumped 4.1% in premarket trading, after running up 9.7% over the past three sessions to close Monday at the highest price since January 2022.
Shares of Ford $(F)$ shed 2% after rallying 6.2% the past three days, while Chrysler, Jeep and Dodge parent Stellantis N.V.'s stock $(STLA)$ dropped 3.7%.
Meanwhile, shares of Tesla Inc. $(TSLA)$ rose 0.3% ahead of the open. The stock has surged since Trump's election win, as Chief Executive Elon Musk spent a lot of time and money supporting Trump's campaign.
See related: Tesla is likely to thrive in a Trump administration. These are the ways these analysts see it happening.
But keep in mind that at Tesla's investor day in March 2023, Musk said that "probably the most exciting announcement of the day" was that Tesla would be building a gigafactory plant in Mexico, where next-generation EVs would eventually be made. What Trump's tariff announcement means for those plans remains to be seen.
Baird analyst Luke Junk said the risk to trade with Mexico was top-of-mind in the auto space after the election, and the inclusion of Canada was an "unexpected development."
If implemented as planned, Junk said that accounting for both direct imports of autos and auto parts heading to U.S. assembly plants, he estimates that the tariffs would reduce auto sales by about 1.1 million vehicles, or about 7.5% of total sales.
For imported autos, Junk estimates that the tariffs could add about $10,000 to the cost of each vehicle, which could cut sales by 900,000 vehicles. Regarding imported auto parts, he believes the tariffs could raise the cost of U.S.-made vehicles by up to $1,250, which could reduce sales by more than 200,000 vehicles.
He noted that while the plan for these tariffs could potentially be short-lived, "this times feels different."
Junk noted that during Trump's presidency, had threatened tariffs, starting first at 5% then rising to 25% in May 2019, but that threat lasted only a week after Mexico made concessions.
However, the latest threat is broader in scope that the previous one, since it includes Canada, and more severe, since it starts at 25%, so he expects it won't be resolved for at least two months when Trump officially takes office.
"For now, we believe a cautious approach is best," Junk wrote.
Among the companies that Junk believes face the highest risks from tariffs are Aptiv PLC (APTV), Methode Electronics Inc. $(MEI.AU)$, Sensata Technologies Holding PLC (ST) and Gentherm Inc. (THRM)
Among those that face the lowest risk are Gentex Corp. $(GNTX)$ and Mobileye Global Inc. (MBLY)
-Tomi Kilgore
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November 26, 2024 08:06 ET (13:06 GMT)
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