Al Root
Wall Street analysts working through the impact of President Donald Trump's steep sectorial tariffs on cars and car parts don't have much good news for investors.
There is one positive, however: A strong start to the year.
On Monday, Deutsche Bank's Edison Yu looked at car stocks under his coverage ahead of first-quarter numbers due out in a couple of weeks.
The good news? The early part of 2025 will benefit from "pre-buying," Yu wrote. Dealers ordered cars to beat the tariffs.
Traditional auto makers such as General Motors and Ford Motor sell cars to dealers. Dealers sell cars to people.
The bad news? There will be a lot of it. Yu sees significant pain coming up and down the automotive value chain.
"We don't expect [auto makers] to bear the full burden of these extra costs as consumers and dealers will take some of the hit," wrote Yu. "Auto makers also implement various mitigation strategies."
Those can include adding shifts to U.S. plants and asking parts suppliers to bear part of the burden.
Still, Yu estimates that Ford and GM could face a $4 billion to $7 billion annual profit hit from tariffs. Ford earned just over $10 billion in operating profit this past year. GM earned almost $15 billion. He isn't optimistic that things will change materially either.
"While the Trump administration appears flexible on broader 'reciprocal' tariffs, the auto tariffs appear stickier," wrote Yu. "Our assumption is they won't go away, representing a cornerstone in America's new industrial policy that demands onshoring."
"Pandora's box" is now open, he added.
Yu cut his Ford price target to $7 a share from $9. He rates Ford stock Hold. He downgraded GM stock to Hold from Buy. His price target went to $43 from $58.
In midmorning trading, GM was up 0.4% in early trading at $43.81 and Ford was down 0.1% at $9.32. The S&P 500 and Dow Jones Industrial Average were up 1.5% and 1.1%, respectively. Coming into Monday trading, Ford and GM were down 12% and 19%, respectively, since the Nov. 5 election.
Since Trump's April 2 tariff announcement, the average analyst price target for Ford is down to about $9.40, according to FactSet, from almost $10 a share. A year ago, it was almost $14 a share.
The average analyst price target for GM is down to about $56, down from almost $61. A year ago, the average target price was about $51. Billions in share repurchases helped GM stock and stock price targets.
Overall, about 54% of analysts covering GM stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Only 20% of analysts rate Ford stock Buy.
As Wall Street starts incorporating tariffs into models and price targets, it's time for investors to do the same.
Write to Al Root at allen.root@dowjones.com
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April 14, 2025 10:55 ET (14:55 GMT)
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