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Investing.com -- In a note to clients Wednesday, Bernstein warned that new tariffs on Mexico and Canada could significantly impact the free cash flow (FCF) of major U.S. automakers, with General Motors (NYSE:GM) facing the most severe hit.
"25% tariffs could decrease auto FCF by up to 60%," said the firm.
They estimate that a 25% tariff could reduce GM’s FY 2026 auto FCF by 64% ($6.7 billion), Ford’s by 39% ($2.9 billion), and Stellantis’ by 38% (€3.5 billion) in a worst-case scenario.
On February 1st, President Trump announced 25% tariffs on Mexico and Canada, along with 10% additional tariffs on China, sending auto stocks down as much as 8% on Monday.
However, after the administration delayed the tariffs until March 4th, stocks quickly rebounded on Tuesday.
“While the sector is not closer to gaining any certainty, the price action allows us to ask: Did the market get it right?” Bernstein wrote.
Despite the recovery, Bernstein believes the market reaction provides key insights into investor sentiment.
“Market sees tariffs as transitory. The magnitude points towards an expectation that tariffs would last for less than 3 months,” the analysts noted.
Additionally, Ford (NYSE:F) was viewed as a relative winner, though Bernstein cautions that “we would still expect significant headwinds for Ford in a tariff scenario.”
Meanwhile, Stellantis (NYSE:STLA) was seen as the biggest loser, but Bernstein argues GM is actually the most at risk due to its financial exposure.
More broadly, Bernstein sees continued policy uncertainty as a major challenge for the sector.
“While this makes it difficult to make equity investment decisions, it will make it near impossible for automotive companies to make actual investment decisions,” the analysts warned.