Global Bilindustri is facing anxious waiting time for US tariffs

Car companies support what may be an even greater shock to the global car supply chain than the Covid pandemic in the midst of uncertainty during the duration and extent of Donald Trump’s global customs war.

Only two days after the US president issued an executive order that applied for “very friendly” conversation with Mexican President Claudia Sheinbaum. Shortly thereafter, Canadian Prime Minister Justin Trudeau also reached an eleventh hour deal with the US for a 30-day break on customs.

Car manufacturers have been careful about making significant and expensive strategic changes without more clarity in the longer term direction for US trade and energy policy, although leaders at General Motors, Stellantis and Tesla have signaled that they will increase the manufacture of the United States to equalize any influence of tariffs.

“If you start overreacting, it’s a little dangerous now,” said Michael Lohscheller, CEO of Polestar, the electric car manufacturer supported by China’s Geely, in a recent conversation.

What might be the worst case?

Many pictures had approached the experience of Trump’s first presidency in playing the risk of an international customs war and said the US president had not implemented threats of further taxes against his trading partners.

Supply chain experts say that the worst case scenario, where both the US and the recipient tariffs are implemented, are likely to lead to a chain of bankruptcies among weaker car parts suppliers.

The global car supply chain is so complicated and interconnected that a component made in Mexico could end up on an American plant before going back to Mexico for the final assembly and then sold to the US market-what can result in “a” one Customs-on-Tariff ”Situation.

“The mechanics of it are almost as bad, if not worse than the actual amounts, because the accounting and accounting and paperwork involved to ensure compliance is massive,” said Ian Henry, a car production expert who runs auto analysis consulting firm .

Henry warned that the disturbance of the supply chain could be worse than during the pandemic if a customs war lasted and the car manufacturers were unable to provide sufficient financial support to keep their suppliers fluid.

Mikael Bratt, CEO of the Swedish Security Belt and Airbag -Maker Autoliv, said it would immediately start discussing about passing on the cost of higher tariffs to customers if implemented against Mexico.

“There is no reason at all why we. . . Absorb all costs like that, ”Bratt said by earnings briefing last week. “In the end, it will be higher costs for vehicles sold in the US.”

Which car manufacturers are most vulnerable?

The traditional “large three” car manufacturers who have spread their footprints across the continent since the signing of the North American Free Trade Agreement in 1994 are the most vulnerable to a hit to the profits. GM was the most vulnerable, said analysts, with Chrysler owner stellantis not much better off. Ford is the least exposed because it imports the smallest proportion of vehicles outside the United States.

GM makes its popular Chevrolet Silverado with high margin on its Silao plant in Mexico and Oshawa in Canada, increasing its exposure. GDP Paribas analyst James Picariello said that although the carmaker could probably change production to the United States for about 300,000 of the 350,000 trucks it is currently importing, such a switch would take 12-18 months as it adjusted supplier shipments and employed workers.

It would add about $ 1 billion. In labor costs, he said, as the workers earned more in the United States than in Mexico. GM’s operating earnings would take a hit of 7 percent, but it so favorably compared to a possible 50 percent reduction that could come from a 25 percent duty.

“A billion -dollar headwind seems like a manageable scenario right now,” Picariello said.

Investors and analysts assumed that any customs on goods from Canada and Mexico would eventually be negotiated, he added, otherwise “the number will be too large for the industry to survive correctly.”

Is German car manufacturers spared if no duty is introduced against the EU?

Even before any tariffs against the EU, European car manufacturers are exposed. Volkswagen is in the worst position, with 45 percent of its US sales coming from cars made in Mexico and Canada, although the US market accounts for a small proportion of the group’s total income.

With all US-sold vehicles from its luxury Audi and Porsche brands manufactured outside the country, Moody’s estimates that a 25 percent Mexican tariff reduces Volkswagen Group’s global earnings before interest and taxes by more than 15 percent.

“We have a factory in Mexico, and regardless of which administration is at work, our plan is to get stronger in the United States,” said Audi CEO Gernot Döllner last month. But he added, “We think customs rates are wrong and we believe in free trade.”

Fellow German Carmaker BMW is less exposed as 65 percent of its cars in the United States are built locally, while it is also a net exporter from the United States.

“There may be unstable situations that may be less predictable, but I’m really optimistic” to the United States, said Jochen Goller, BMW’s board member with responsibility for customer, brands and sales. “I think it will be one of the growth markets for us in the next year.”

Will Tesla emerge as a winner from Trump’s customs rates?

Investors have attached hope that Elon Musk’s close ties to Trump will protect Tesla from the fall of the president’s policy, but the world’s largest electric vehicle manufacturer is still exposed.

Tesla collects all its vehicles sold in the US locally, but it sources 20 to 25 percent of its components for Model 3, Model Y and Cybertruck from Mexico, according to Barclays.

“Over the years we have tried to locate our supply chain in any market, but we are still very dependent on parts from all over the world for all our businesses,” said CFO Vaibhav Taneja by earnings briefing last week and warning of a hit to its profitability from Trump’s duty.

The company can also be a measure of retaliatory gaps by Canada. Former Finance Minister Chrystia Freeland, who is running to replace Trudeau as prime minister, has said Ottawa should retaliate against US tariffs by adding huge charges to Tesla vehicles to punish Musk.

The Tarifit War also comes as Tesla is struggling with falling sales in Europe due to slow demand for electric vehicles, increased competition and a consumer’s setback against Musk’s political activism.

According to the French Industry Association La Platform Automobile, Tesla’s January sale in France was 63 percent lower than a year earlier.

Which car manufacturers are the least exposed?

Smaller Japanese car manufacturers, such as Mitsubishi Motors and Subaru, could benefit from a lack of production in Mexico and Canada. Honda is also relatively well located as two -thirds of its US sales gather locally, according to Barclays.

Takao Kato, CEO of Mitsubishi Motors, told journalists on Monday that the tariffs would have little influence on the company and that it could even receive a slight “Tailwind” from increased export to the United States if customs were not expanded to the rest of Asia.

However, he then withdrew his comment and said that “in balance looks like there are more headwinds” and clarified that Japan could benefit if it managed to twist out of being the target of heavy tariffs.

Renault is also unlikely to be hit hard as it has no sales in the US or Canada. The French carmaker’s shares fell only 0.6 percent on Monday, well below the fall, as other European carmakers suffered with greater US exposure.

Renault, one of the few European brands that did not issue a profit warning last year, was “doing very well” in Europe, “said Stephen Reitman, analyst at Bernstein. The company’s exposure to customs is through his share in Nissan, currently is pursuing a merger with Honda.

But while the company is less exposed than rivals, Reitman added: “There aren’t many winners in all this. . . It reduces wealth, which reduces GDP, which reduces car sales. “