European and American carmakers could face up to a 17% drop in annual core profits if the U.S. imposes new tariffs on vehicle imports from Europe, Mexico, and Canada, according to a report by S&P Global. The proposed tariffs, championed by President-elect Donald Trump, could trigger significant financial strain, particularly for manufacturers with strong ties to these regions.
Most Impacted Players
Premium automakers like Volvo and Jaguar Land Rover, primarily producing in Europe, and large-scale manufacturers like General Motors (GM) and Stellantis, which rely heavily on Mexico and Canada for assembly, are most vulnerable to the potential 25% import duty. Trump suggested the tariffs aim to curb drug trafficking and illegal migration, despite likely conflicts with the existing North American free-trade agreements.
Potential Financial Fallout
A worst-case scenario outlined by S&P Global assumes a 20% tariff on U.S. imports of light vehicles from the EU and the UK, along with a 25% duty on imports from Mexico and Canada. This scenario could put a substantial portion of automakers’ earnings at risk:
- GM, Stellantis, Volvo, and Jaguar Land Rover: Over 20% of projected adjusted EBITDA in 2025.
- Volkswagen and Toyota: Between 10% and 20%.
- BMW, Ford, Mercedes-Benz, and Hyundai: Below 10%.
Key Challenges Ahead
S&P Global predicts that automakers will likely implement mitigating strategies to offset the effects of tariffs. However, combined with other pressures—such as stricter CO2 regulations in Europe (lowering the cap on emissions to 94 grams/km in 2025) and fierce competition in China and Europe—the risk of credit downgrades looms.
“We expect mitigating actions will make potentially higher tariffs manageable, but the combined effects of tariffs, tighter CO2 regulation in Europe, and earnings pressure could increase the risk of downgrades,” S&P stated.
Wider Implications
Tariffs could disproportionately harm European carmakers like Volkswagen and Stellantis, along with their suppliers, more than direct tariffs on other EU goods. The warning underscores how geopolitical decisions could ripple through global markets, affecting profitability and competitiveness in an already challenging automotive landscape.
Looking Ahead
While analysts believe automakers will adapt, the interplay between new tariffs, regulatory requirements, and shifting market dynamics underscores the volatility of the global auto industry. With profits and credit ratings potentially at stake, manufacturers may face a pivotal moment in the coming years.
