Revisiting the week's auto stock performance reveals the diverse landscape of the automotive market.

As Trump prepares to take office for a second term in the White House, he aims to "reset the global trade balance," with his tariff policy potentially imposing significant costs on many American enterprises.

Trump seems to be making enemies with the "world" at large.

During his campaign, Trump vowed to increase tariffs on Chinese goods to 60% and impose a 10% tariff on goods from all other countries. Post-election, he indicated plans to add an additional 25% tariff on Mexico and Canada. In late December 2024, Trump threatened the EU, stating he would impose tariffs if its member states did not increase purchases of American oil and gas, thereby reducing the "huge" trade deficit with the US.

According to Tax Foundation estimates, if all tariff proposals are implemented, the average tariff rate as a percentage of imported goods' value will rise from 2.4% to 17.7%, the highest level since the "Great Depression" of 1934.

The North American auto industry could be hit hardest.

American enterprises heavily reliant on imported materials and components, including most American automakers, may be particularly severely impacted.

Data from the National Highway Traffic Safety Administration shows that about 50% to 70% of the components of popular cars assembled in the US come from Canada or are manufactured domestically, with the remaining components imported from Mexico and other places. According to Cars.com data, imported components account for an average of 50% of all automotive components. About 25% of cars sold in the US are assembled abroad and may be subject to high tariffs.

Wolfe Research analyst Emmanuel Rosner estimates that the overall impact of tariffs could be $3,000 per imported car, accounting for about 6% of the average price of a new car. His estimate falls in the middle of Wall Street's forecast range. Barron's previously estimated that a 10% universal tariff could lead to a 4% or 5% increase in the price of new US-made cars, while a 25% tariff on Canada and Mexico would result in a price increase of nearly 8%.

Rising prices of components and materials may also affect the sales and profits of American automakers, especially if they cannot pass on the increased tariff costs to consumers.

Bernstein analyst Daniel Rosca predicts that tariffs on Canadian and Mexican goods will hurt Ford, General Motors, and Stellantis' profits. He estimates that General Motors' operating profit may decline by 30%, while Stellantis' and Ford's operating profits may drop by 20% and 25%, respectively.

Higher car prices may lead to a decline in consumer demand. Baird analyst Luke Junker estimates that in the worst-case scenario, a 25% tariff on Canada and Mexico could reduce already sluggish US auto demand by about 1.1 million vehicles, accounting for about 7% of total demand.

However, Caroline Levitt, a spokesperson for Trump's transition team, stated that voters had authorized Trump to fulfill his campaign promises, including halting the government's attack on gasoline-powered vehicles. Levitt said in a statement: "President Trump will support the auto industry and make room for both fuel and electric vehicles after taking office."

Reuters notes that this news comes at a time when the US electric vehicle transition is stagnating, while China's electric vehicle industry continues to thrive due to its superior battery supply chain. American industry media commented that while the proposed investment in American battery materials is a "bit of solace," the overall policy will undoubtedly slow down electric vehicle sales in the US, further lagging the market behind other regions.

A Substantial Cost for Europe

During the 2024 US presidential campaign, Trump threatened to impose tariffs on German automakers unless they shifted production to the US.

"They don't take our cars, they don't take our agricultural products, they don't take anything," Trump said during a campaign event last October. "They will have to pay a huge price."

The American market is the primary destination for European passenger cars. According to data from the visualization data platform Statista, the total value of European car exports to the US in 2023 was $42.5 billion, compared to about $7.8 billion worth of cars exported from the US to Europe during the same period.

Last month, after Trump announced his plan to impose a new 25% tariff on Canada and Mexico, although the EU had not yet been mentioned, European automaker stocks plummeted on the day of the announcement, highlighting widespread concerns.

Data shows that the Euro Stoxx Autos & Parts Index has fallen 13% year-to-date, making it one of the worst-performing sectors in the European market, while the broader Euro Stoxx 600 Index has risen 7% over the same period. German automakers, including Mercedes-Benz, Porsche, Volkswagen, and BMW, have seen their share prices fall between 13% and 25% this year.

Trump's tariff threats have added insult to injury for European automakers.

Currently, the industry is already under immense pressure due to factors such as the long-term impact of geopolitical conflicts, and the European auto industry is facing a deepening recession. They have already witnessed sales declines in major markets like the US last year.

Potential tariffs will not only severely impact leading European car brands such as Volkswagen and Volvo but also Central and Eastern European countries whose economies are heavily reliant on these automakers. Germany, a major automaker, will bear the brunt, as it remains by far the largest exporter of passenger cars in Europe.

Calculations by the German Institute for Economic Research indicate that if the US imposes tariffs on the EU, Germany's economic losses could reach up to 180 billion euros over the next four years.

Even Close Allies Keep Clear Accounts

As a close ally of the US, Japan also hopes to restart trade negotiations with Trump.

According to Caixin Global, Japanese Foreign Minister Takeaki Iwaya stated that Japan hopes to restart trade negotiations with Trump and that both sides have agreed to include the elimination of tariffs on automobiles and auto parts in the negotiation agenda.

He further explained that the original Japan-US trade cooperation was reached during Trump's first term five years ago, when the two countries agreed to allow more American agricultural products to enter the Japanese market in exchange for Japanese cars being exempted from American tariffs.

Iwaya emphasized that in the new negotiation document, the US has included automobiles and auto parts in the list of goods for which tariffs can be eliminated, and the negotiations between the two parties will be premised on the elimination of tariffs on Japanese cars entering the American market.

Previously, Trump threatened to impose additional tariffs of 10-20% on all overseas countries, including Japan. According to Japan's Ministry of Finance, the US was Japan's largest export destination in 2023, with automobiles and auto parts accounting for one-third of Japan's exports.

Previously, analysts were concerned about the "close cooperation" between the US and Japan, believing that the friendly relations between the two countries during Trump's first term largely depended on the close personal connection between Trump and then-Prime Minister Shinzo Abe, but Japan's current prime minister has no advantage in this regard.

What makes the market even more uneasy is that Trump has also taken the lead in targeting Canada and Mexico, which are allies under the North American Free Trade Agreement, making it difficult for Japan to continue to wait and see.

On one hand, the global auto market has already entered a phase of restructuring due to China's electric vehicles, and the Japanese auto industry has borne enormous costs and transformational pressures in this process.

On the other hand, the intention behind Trump's tariff policy is to force advanced automakers to set up factories in the US, with the main target being Chinese manufacturers. Japan is likely to only suffer collateral damage in this process and is unlikely to receive support from the US.

Therefore, excluding American tariffs on the Japanese auto industry is likely to be a crucial game that determines the survival of the Japanese auto industry, which is also the underlying reason why the Japanese authorities desperately hope to reach an understanding with the Trump administration in advance.

An Ongoing Game

It is believed that Trump will also escalate the blockade against cars, auto parts, and battery materials from China.

According to a proposed document seen by Reuters, the transition team suggested that Trump invoke Section 232 of the US Trade Expansion Act of 1962, which addresses "national security threats," to impose tariffs on imported products in the "electric vehicle supply chain," restricting imports related to batteries, key minerals, and charging components.

Additionally, parts of the document that may be related to China also include expanding export restrictions on electric vehicle battery technology to all so-called "enemy countries".

The US Department of Defense has been emphasizing the country's "strategic vulnerability" in recent years, citing China's dominance in the mining and refining of key minerals such as graphite, lithium, and rare earth metals. Graphite and lithium are key raw materials for power batteries, while rare earth metals can be used to manufacture electric vehicle motors and military aircraft.

A report released by the US government in 2021 stated that the US military faces "escalating power demands" in technologies such as weapons and communication equipment. The report believes that "reliable sources of critical minerals and materials" are "crucial" to US national security.

It should be noted that in May last year, the Biden administration announced the results of the four-year review of Section 301 tariffs on China, announcing that it would further impose tariffs on about $18 billion worth of Chinese products on top of the existing Section 301 tariffs, including lithium batteries, graphite, rare earth permanent magnets, etc., which are being focused on by Trump's transition team.

In response, China's Ministry of Commerce stated at the time that the US had abused the Section 301 tariff review process for domestic political considerations, further increasing Section 301 tariffs on some Chinese products, politicizing and instrumentalizing economic and trade issues, which was typical political manipulation, and China expressed strong dissatisfaction. The US should immediately correct its wrong practices and cancel the tariff measures imposed on China. China will take resolute measures to defend its rights and interests.

After Trump considered declaring a national economic emergency, share prices of manufacturing companies involved in global supply chain networks, such as automakers, chip manufacturers, and related industries, fell in pre-market trading.

In pre-market trading of US stocks, General Motors' share price fell 0.9%, Ford Motor dropped 0.7%, Tesla declined 1.4%, and Stellantis fell 2.2%. Electric vehicle startup share prices also performed weakly, with Rivian down 2.2% and Lucid down 1.9% in pre-market trading. Chinese ADRs NIO fell 4%, Xpeng declined 3.4%, and Li Auto dropped 1.7%.

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