The U.S. auto industry - and investors in auto stocks - have a huge amount at stake as President Trump prepares to impose a first round of tariffs on Mexican imports by this Monday, June 10. The automotive industry is heavily dependent on parts and vehicle imports from Mexico, and investors have much more at risk than their ownership of blue-chip companies like General Motors Co. (GM) and Ford Motor Co. (F). There is a long list of publicly owned auto suppliers that would see an immediate impact on earnings, sales and their stock prices if trade talks between the U.S. and Mexico fail. U.S. auto suppliers could see their earnings drop by 50% or more if President Trump follows through on threats to slap tariffs as high as 25% on all imports from Mexico, according to Business Insider.
Some of the companies facing considerable risks include Veoneer Inc. (VNE), Tenneco Inc. (TEN), BorgWarner Inc. (BWA), American Axle & Manufacturing Holdings Inc. (AXL), Lear Corp. (LEA), Delphi Technologies PLC (DLPH), Autoliv Inc. (ALV), Aptiv PLC (APTV), Visteon Corp. (VC) and Adient PLC (ADNT), per BI.
These stocks pulled back sharply in recent weeks and have recouped some or all of their losses in recent days on hopes that the U.S. and Mexico can reach a deal. President Trump stated by tweet on Friday afternoon that there's a "good chance" of reaching an agreement. But if the talks fail, he said tariffs will begin on Monday.
BorgWarner: Tariffs’ Impact on One Company
- $500 million of imports from Mexican supplier exposed to tariffs
- $25 million in direct costs under 5% tariff (est. 2% of 2019 EBIT)
- $125 million in direct costs under 25% tariff (est. 10% of 2019 EBIT)
- 3.1% drop in share price following Trump tariff warning (5/31)
- $8.1 billion market cap likely to tumble from tariffs
Source: RBC Capital Markets, Business Insider
What it Means for Investors
Here's a look at how tariffs would affect several suppliers.
A 5% tariff could cost auto supplier Aptiv, which designs and manufactures vehicle components and provides electronic and safety solutions, about $204 million on an annual basis. The auto supplier’s chief executive, Kevin Clark, told investors at a conference in Boston that a 5% tariff would cost it around $17 million per month.
The annual filings of Delphi - which designs, develops, and manufacturers integrated powertrain technologies - illustrates how important Mexico is to its North American business. Their latest annual report notes that the company’s “regional model is structured primarily to service the North American market from Mexico,” according to Barron’s. American Axle and Lear are also among the leading auto suppliers with the biggest exposures to Mexico.
Trump’s plan is for the initial 5% tariff to come into effect on June 10, thereafter increasing incrementally each month by 5% until they reach 25% in October. Unless the two countries can settle their disputes, expect more damage to shares of auto suppliers and continued worsening of earnings forecasts. Even with a deal by Monday, some auto suppliers still may decide to reconfigure their supply chains to reduce their dependence on Mexico. That could boost costs and hurt their earnings and share prices.