Shares of many of the world’s biggest auto companies fluctuated after the U. S. imposed tariffs on Mexico and Canada, and some recovered after falling sharply on Monday. The auto industry is highly dependent on manufacturing operations across North America, particularly in Mexico, and has complex supply chains, CNBC.com quoted analysts as saying, so expect Donald Trump’s tariffs to have a profound impact on the global car industry. The Financial Times reported yesterday that amid uncertainty about the duration and extent of Donald Trump’s global tariff war, car companies are bracing themselves for what could be a bigger shock to the global automotive supply chain than the coronavirus.
Much of the stock market volatility was caused by planned U. S. tariffs threatening sales at companies with plants in Mexico and Canada. Honda assembly plant in Ontario, Canada. (IC Photo)
A slight recovery after a heavy fall
US President Donald Trump signed an executive order Wednesday imposing a 25% tariff on some Canadian and all Mexican imports. According to the BBC, Donald Trump said yesterday that tariffs on the EU were“Certain to happen” and could happen“Very soon”.
A series of tariff policies and attitudes have a strong impact on the international market, among them, the impact on the automotive industry is obvious. Shares of global carmakers plunged on Monday as investors fretted about the impact of a potential trade war, CNBC reported.
Shares of French auto parts supplier Valeo fell 7.4% in Europe, Reuters reported Wednesday. Volkswagen fell 5.6 percent. In Asia, shares of Toyota and Nissan both fell more than 5 percent on Monday, while Honda fell more than 7 percent, Reuters reported. Meanwhile, shares in a number of South Korean electric car and battery makers, including KIA, have fallen sharply. U. S. markets, according to the U. S. “Fortune” magazine reported on the 4th, the U. S. ‘s largest automaker General Motors shares plunged 7% in pre-market trading on Monday, strantis shares fell more than 5% . Electric Carmakers Tesla, Rivian and Lucid also fell in pre-market US trading.
However, on March 3 local time, Donald Trump signed an executive order to suspend the imposition of tariffs on Mexican and Canadian goods until March 4,2025. As a result, some auto companies cut their losses. According to Reuters reported on the 4th, the U. S. Stock Market, some auto companies cut earlier losses. General Motors fell 3.4 percent, Ford 1.9 percent and Tesla 5.7 percent. Among Asian automakers, Honda, Toyota, Nissan and Kia all posted small gains on Feb. 4, rising between 0.6% and 1.8% .
“The auto industry will shut down within a week”
The global car market has been particularly affected by the US tariffs because factories in Mexico and Canada have been threatened by sales that would otherwise go into effect.
The zero largest automakers rely heavily on imports from other countries, such as Mexico, to meet the needs of American consumers, according to CNBC. Nearly every major automaker operating in the U.S. has at least one plant in Mexico, including the six largest by sales, their 2024 accounts for more than 70 per cent of all American car sales. Bloomberg reports that in the complex chain of North American auto manufacturing, auto parts are shipped to and from the U.S. border six to eight times throughout the production process. Now, the Donald Trump administration’s tariffs are putting pressure on this vast industry, and the cost of raw materials from the US, Canada and Mexico is soaring.
Previously, in response to possible tariffs, “The auto industry is going to shut down in a week,” said Flavio Wolpe, president of the Canadian Association of automobile parts manufacturers. “We are 25 percent Capacity utilization and no one is making a profit.”
In addition to the impact on the global auto market, the possible implementation of tariff policy will also have a huge impact on the U. S. domestic auto industry. A study by consulting firm Alixpartners shows that nearly a quarter of the 16 million vehicles sold in the U.S. each year will be directly hit if the tariffs go into effect, Bloomberg reported, the components supply chain is not immune. In 2024 terms, US imports of auto parts total $225bn, and the additional tariffs will impose $60bn of additional costs on the industry, with consumers likely to bear the end result.
Anindya Das, an analyst at Nomura Securities Co. , was quoted by the Nikkei Asia Review as saying Tuesday that the tariffs could cut $33 billion from the U.S. auto industry’s operating profit, which includes assembled cars and components.
Be cautious about strategic adjustments
Analysts at Stifel, the investment bank, said in a report that VW’s revenues of about €8bn and Stranitis’s about €16bn would be affected if the tariffs were imposed. The report estimates that the full impact of tariffs in 2025 will account for about 12 per cent of VW’s operating income and 40 per cent of Strantis’s.
In response, VW said it was assessing the potential impact of US tariffs on it and the industry as a whole and hoped to avoid trade conflicts through negotiations.
In addition to negotiations, auto companies elsewhere are taking different approaches to reducing the impact of tariffs. Earlier, Rivian senior vice president of electronic hardware Vidya Rajagopalan told reporters that contract manufacturers would step up purchases in Vietnam or other countries where tariffs have not been imposed, Business Insider reported Wednesday.
Meanwhile, South Korea’s Hyundai Motor Group is considering exporting its mexican-made cars to Canada, South America or Europe, as well as moving its Mexican manufacturing plant to the US, Yonhap news agency reported Wednesday. “Because of the 25 percent tariff, it may be cheaper to produce in South Korea and export directly to the United States than to produce in Mexico, so we are considering direct shipments,” the Chosun Ilbo, a South Korean newspaper, quoted an executive at a Mexican auto parts company as saying Wednesday
Automakers have been cautious about making major and costly strategic adjustments until the long-term direction of U.S. trade and energy policy becomes clearer, the Financial Times reported Thursday, but executives at GM, Strandis and Tesla have said they will increase production in the US to offset the tariffs.