The escalating trade tensions between the U.S. and its key trading partners are creating fresh concerns for the automotive industry.
Goldman Sachs analyst Mark Delaney, CFA warns tariffs pose a significant downside earnings risk for U.S. automakers and industrial tech companies, with potential reductions in vehicle production and rising costs for imported parts.
In a note shared on Tuesday, Delaney indicated that uncertainty surrounding tariff policy is leading some companies to accelerate imports in early 2025 to build inventory. However, he added that businesses are unlikely to make long-term operational changes until the situation stabilizes.
“We believe the proposals for increased tariffs have likely led some companies to accelerate imports in Q1 to stock inventory,” Delaney said. “But also that the volatile policy plans will limit more permanent changes in operations until there is clarity on what the rules will be.”
Tariffs On North American Auto Imports Delayed, For Now
Tariffs on United States-Mexico-Canada Agreement (USMCA)-compliant goods were initially set to take effect on March 4 but were paused on March 7 by an executive order from President Donald Trump. This marks the second delay in tariff enforcement for Mexican and Canadian imports, reflecting ongoing trade policy uncertainty.
While most vehicles and auto parts imported from Mexico and Canada meet USMCA compliance, a small percentage of non-compliant European automaker models could still be subject to duties.
Goldman Sachs’ economics team now believes there is an increased likelihood of broad-based auto tariffs beginning in April. These could target a wider range of imports, including critical auto parts, which would have far-reaching implications for supply chains.
“We believe that reduced production—and potentially higher tariffs on foreign imports—could partly mitigate the effect on OEMs with mostly or all U.S. production,” Delaney said.
“But it would be a larger negative for suppliers, which we don’t believe will see a material pricing offset from lost production, similar to what occurred during the COVID supply chain shortages.”
How Will Tariffs Impact US Automakers?
Delaney said that automakers with significant domestic production, such as Tesla Inc. TSLA and Rivian Automotive Inc. RIVN, could be less affected than companies that rely on foreign imports.
However, Michigan-based automakers like General Motors Co. GM and Ford Motor Co. F face substantial risk as they both manufacture a significant portion of their U.S.-sold vehicles in Mexico, making them particularly vulnerable to new tariffs.
Goldman Sachs analyzed the potential earnings impact of tariffs ranging from 5% to 35%, with a 25% tariff leading to billions in additional costs for Ford and GM.
The impact would be particularly severe if automakers cannot fully offset higher import costs through price increases or supply chain shifts.
“GM has commented, for example, that it believes it could mitigate 30%-50% of tariffs,” Delaney said.
Projected 2025 Earnings Impact From Vehicle Tariffs
GM (Percentage Change in EPS, Assuming No Offsets)
| % of GM U.S. Units from Mexico/Canada | 5% | 10% | 15% | 20% | 25% | 30% | 35% |
|---|---|---|---|---|---|---|---|
| 10% | -3% | -7% | -10% | -14% | -17% | -21% | -24% |
| 15% | -5% | -10% | -15% | -21% | -26% | -31% | -36% |
| 20% | -7% | -14% | -21% | -27% | -34% | -41% | -48% |
| 25% | -9% | -17% | -26% | -34% | -43% | -51% | -60% |
| 30% | -10% | -21% | -31% | -41% | -51% | -62% | -72% |
Ford (Percentage Change in EPS, Assuming No Offsets)
| % of Ford U.S. Units from Mexico | 5% | 10% | 15% | 20% | 25% | 30% | 35% |
|---|---|---|---|---|---|---|---|
| 5% | -3% | -6% | -9% | -12% | -15% | -18% | -21% |
| 10% | -6% | -12% | -18% | -24% | -30% | -36% | -42% |
| 15% | -9% | -18% | -27% | -36% | -45% | -55% | -64% |
| 20% | -12% | -24% | -36% | -48% | -61% | -73% | -85% |
How Auto Parts Tariffs Could Add To The Pain
Beyond finished vehicle imports, tariffs on auto parts from Mexico and Canada could have a significant financial impact. Delaney estimated that each vehicle contains $5,000-$10,000 worth of parts from Mexico/Canada, meaning additional tariffs could add billions in costs for automakers.
For example, if 25% tariffs were imposed on auto parts, Ford and GM could each face an additional high single-digit to low double-digit percentage hit to 2025 earnings.
Projected 2025 EPS Impact from Auto Parts Tariffs (GM & Ford)
| Content Per Vehicle | 5% | 10% | 15% | 20% | 25% | 30% | 35% |
|---|---|---|---|---|---|---|---|
| $5,000 | -3% | -7% | -10% | -14% | -17% | -20% | -24% |
| $7,250 | -5% | -10% | -15% | -20% | -25% | -30% | -35% |
| $10,000 | -7% | -14% | -20% | -27% | -34% | -41% | -48% |
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