Al Root

Tariffs that threaten to upend the U.S. auto industry are coming -- soon.

Investors, frankly, appear confused, shunning the American auto makers. That could spell opportunity down the road -- if deals are reached with Canada and Mexico.

Until drugs crossing borders comes to a stop, "the proposed [25%] TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled," wrote President Donald Trump in a Thursday post on Truth Social.

The industry isn't happy. For more than 30 years, it has treated North America as one free-trade zone. Millions of cars are assembled in Canada and Mexico, and half the parts on popular models could originate in those two nations.

According to Ford Motor CEO Jim Farley, the tariffs threaten to wipe out billions in auto-industry profits. Stellantis management urged the President on Wednesday to apply tariffs on the "four million cars that are sold in America [annually] that don't have any U.S. content." That comment is directed at Korean, Japanese, and European manufacturers that ship cars into the country from overseas.

The situation is tense and confusing. Toyota Motor, in theory, could fare better than General Motors in Trump's second administration.

Car stocks show that investors would prefer to just wait to see how things turn out, but make no mistake, U.S. auto makers are taking it on the chin.

Shares of the traditional Detroit Three auto makers, GM, Ford, and Stellantis, are down about 9% on average since the Nov. 5 election. The S&P 500 is up about 3%.

Volkswagen and BMW shares are up more than 15%. Toyota's U.S.-listed American depositary receipts are up about 5%.

Honda and Hyundai Motors shares have dipped about 7% and 8%, respectively.

The moves are all over the place. Ford has the least exposure to Canadian and Mexican manufacturing. Volkswagen, in its North American business, has the most.

Ford, GM, and Stellantis shares are trading for about 4.5 times estimated 2026 earnings, down from about 5.5 times a year ago. That's an almost 20% discount -- and it might represent the upside if auto makers can carve out exclusions or if tariffs are applied uniformly across the industry.

Uniform tariffs, of course, have the potential to raise prices for consumers, hit profit margins of auto makers, decrease demand for new cars, or a combination of all three.

It will be an interesting year for automotive investors, and picking the stocks that will outperform will be challenging.

Ford and GM stocks were both up in early trading Thursday, showing that a lot of tariff pain is already reflected. Stellantis stock is down 4.5%, but that company reported weaker-than-expected earnings on Wednesday.

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

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February 27, 2025 11:48 ET (16:48 GMT)

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