Al Root

The performance of car stocks just hasn't lined up with the threat of new import tariffs. There are a couple of reasons for that, but investors should consider whether a change is coming as President Donald Trump's threat likely becomes a reality in a few weeks.

The president said Tuesday that automotive tariffs could be 25%. Previously, Trump has threatened 25% tariffs on Canadian and Mexican imports. It appears the rest of the auto industry is getting caught up in his plans.

That's worst for German and South Korean auto makers. It's best, to some extent, for Ford Motor.

Volkswagen imports about 80% of the cars it sells into the U.S., according to Bloomberg. Hyundai Motor and Kia import about 65%.

Next in terms of tariff exposure in the U.S. come Mercedes-Benz and BMW at about 63% and 52%, respectively.

Japanese auto makers Toyota Motor and Honda Motor import about 51% and 35% of sales, respectively.

General Motors and Stellantis import roughly 45% of the cars they sell in the U.S., and Canadian and Mexican production are the reasons those numbers look high. Car companies have spent the past 30 years-plus treating North America as one free-trade zone.

Ford imports about 20% of the cars it sells in the U.S. Tesla imports none, since it manufactures cars for the U.S. market in Fremont, Calif., and Austin, Texas.

As it turns out, tariff exposure alone hasn't explained recent stock performance. Through Tuesday's trading and since the election, shares of Volkswagen, BMW, and Mercedes were up about 14% on average since the Nov. 5 election.

Toyota's U.S.-listed American depositary receipts are up about 5% since the election, while shares of Kia, Hyundai, and Honda are down about 5% on average. Shares of GM and Ford are worse, down 10% and 12%, respectively. Tesla stock has jumped about 41%.

Ford has been the weakest despite its relatively strong U.S. manufacturing base.

More than tariffs matter for car investors, however, and Ford gave relatively disappointing guidance with its fourth-quarter earnings report in February. Ford and GM also make more of their money in the U.S. than other auto makers, so any disruption in the U.S. impacts them more.

Still, investors should be ready for some performance convergence in the group, especially if new Trump tariffs impact cars regardless of their country of origin. The U.S. is an essential market for everyone. It's essentially the second-largest new-car market in the world after China.

Convergence doesn't mean Ford and GM shares will recover, though. Ford CEO Jim Farley warned tariffs could wipe out billions of dollars in industry profits. Barron's has previously estimated that tariffs could raise the price of a new car anywhere from 4% to 10%. We've also pointed out that more than tariffs go into car pricing. Supply and demand can also keep prices more stable while hitting auto makers' bottom lines harder.

Few in the car business are looking forward to new import levies.

Tesla, as always, is a special case. Its stock is up despite some tariff risk and the potential for the president's promise to eliminate electric-vehicle purchase tax credits. But investors expect CEO Elon Musk's close relationship with President Trump to yield benefits for the auto maker, likely in the form of regulations that speed the deployment of self-driving cars. Tesla plans to launch a self-driving robotaxi service in 2025.

Shares of GM, Ford, and Tesla were essentially flat in premarket trading Wednesday, while S&P 500 and Dow Jones Industrial Average futures were both down about 0.1%.

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

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 19, 2025 07:49 ET (12:49 GMT)

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