Al Root

Another day, another tariff-related cut to earnings forecasts and stock ratings in the automotive sector.

It's getting monotonous, and not in a good way. The cuts are weighing on investor sentiment, and the worst is probably still to come.

On Tuesday, Barclays analyst Dan Levy looked at his estimates for auto makers' earnings before they report their first-quarter results. He didn't like what he saw.

"Amid a highly challenging environment, making a near-term investment case for the autos sector is increasingly difficult," wrote Levy. " Auto tariffs are seemingly here to stay, and valuations are seemingly not pricing in full tariff risk."

The U.S. imports roughly half of the new cars sold here, mainly from Mexico, Japan, South Korea, and Canada. Those imports now face a 25% import tariff. Tariffs on car parts at the same rate are due to be implemented in a couple of weeks.

First-quarter earnings will probably be better than expected, he said, but it won't matter because companies will cut or withdraw their financial guidance as they struggle with the effects of tariffs.

He reduced his estimates of 2025 operating profit for Ford Motor and General Motors by 60% and 40%, respectively. He took his forecasts for auto suppliers down by 10% to 25%.

He also downgraded his view of the sector to "Negative" and cut his rating for GM stock to Hold from Buy. His price target went to $40 a share from $70, down 43%.

His Ford stock price target went to $8 from $10. As for suppliers, Levy cut his Aptiv target price to $55 from $80 a share. The BorgWarner price target went to $$35 from $42. Levy's Magna International target went to $37 from $47.

Levy downgraded Aptiv to Hold from Buy. He kept his Buy rating on Borg stock and a Hold rating on Magna stock.

Early Tuesday, shares of GM and Ford were down 1.2% and 0.4%, respectively, while S&P 500 and Dow Jones Industrial Average futures were down 0.2% and 0.4%, respectively. Aptiv stock was off 2.3%. Borg and Magna shares were close to flat.

Coming into Tuesday's trading, those five stocks were off about 20% since the Nov. 5 presidential election. Ford stock has been the best, dropping 8%. Magna stock has been the worst, dropping 23%.

Cuts and downgrades have become a theme as Wall Street tries to quantify the impact of tariffs. Deutsche Bank and UBS downgraded GM stock recently. Bernstein, Deutsche Bank, and Goldman Sachs have downgraded Ford shares.

RBC cut Magna's rating to Hold from Buy recently. UBS did the same to Aptiv. It also cut Borg stock to Hold from Buy earlier this month.

In general, analysts see anywhere between 20% and 100% of operating profit being wiped out. It's a wide range: The ability to raise prices, effects on demand, how much of the burden suppliers bear, cost offsets, and, of course, the form of final tariffs all affect estimates.

Tariffs are a gale-force headwind for the sector and the stocks. Investors don't know when, or if, the storm will pass.

Write to Al Root at allen.root@dowjones.com

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April 15, 2025 09:18 ET (13:18 GMT)

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