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On Tuesday, Bernstein released a report highlighting the significant challenges the U.S. auto industry could face due to the imposition of tariffs. Daniel Roeska, an analyst at Bernstein, has raised concerns about the long-term impact of a flat 25% tariff on imported vehicles and the possibility of extending these tariffs to parts, which could lead to supply chain fragility and operational damage.
According to Roeska, the industry is approaching a "policy-induced storm" with the potential for severe earnings pressure and supply chain disruptions. He warned that the imposition of parts tariffs, set to take effect on May 3, could be particularly damaging. While larger suppliers might manage the strain, the extensive network of smaller Tier 2 and Tier 3 suppliers might not be able to withstand the margin or working capital pressures, which could result in bankruptcies and halted production lines.
The market’s response to the tariff announcement last week was a 5% sell-off in auto stocks, which now sit approximately 10% lower. For Stellantis specifically, InvestingPro data shows the stock has fallen nearly 10% in the past week and is trading near its 52-week low of $11.02. According to InvestingPro’s Fair Value analysis, Stellantis appears significantly undervalued at current levels. Roeska observed that the market seems to be expecting a policy reversal before the third quarter and does not anticipate parts being included in the tariffs. He suggested that the market has not correctly priced in the downside risk, as evidenced by the lack of differentiation in stock movements among companies like Ford and Rivian (NASDAQ:RIVN), and Stellantis appearing to be in a better position. InvestingPro data reveals Stellantis maintains a moderate debt level with a debt-to-equity ratio of 0.46 and remains profitable with a P/E ratio of 5.54, suggesting relative financial stability. Discover 14 additional exclusive ProTips and comprehensive analysis in the Pro Research Report.
General Motors (GM) is identified as having the most at stake among the Detroit Three automakers, with significant exposure due to its high North America revenue share, vehicle import rate, and low U.S. parts content in domestic builds. Bernstein’s worst-case scenario suggests that GM could see a 79% drop in EBIT, an 81% fall in EPS, and a negative swing of $4.1 billion in free cash flow. Ford is less vulnerable due to its lower import rate, potentially facing a decrease of 16.5% in EBIT, 23% in EPS, and a 36% reduction in free cash flow. Stellantis, with a more substantial local parts content and lesser U.S. revenue share, could see an approximate $1 billion EBIT impact, an 8.75% decrease in net income, and around a €500 million hit to free cash flow. The company currently generates $162.5 billion in annual revenue and maintains a current ratio of 1.09, though InvestingPro analysis indicates rapid cash burn requires monitoring. Access the full Pro Research Report for detailed insights into Stellantis’s financial health and growth prospects.
In other recent news, major U.S. automakers, including Ford Motor Co . (NYSE:F), General Motors Co (NYSE:GM)., and Stellantis NV (NYSE:STLA), are lobbying the U.S. government to exclude certain vehicle parts from upcoming tariffs. These tariffs, set at 25%, are expected to increase vehicle prices significantly. In anticipation of these tariffs, Deutsche Bank (ETR:DBKGn) has adjusted its forecast for the U.S. auto industry, predicting a decrease in 2025 sales projections by about 500,000 units. TD Cowen has also weighed in, suggesting that Ford, General Motors, and Stellantis could see a substantial decrease in 2025 earnings if the tariffs persist. However, Tesla (NASDAQ:TSLA) is noted as potentially benefiting from the situation due to its lower tariff exposure. Meanwhile, Stellantis is offering voluntary buyouts at some U.S. factories to cut costs after a challenging year. Ontario officials are hopeful that the U.S. will ease the impact of these tariffs on Canadian supply chains. These developments highlight the ongoing adjustments within the auto industry in response to new economic policies.
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