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The US auto industry faces uncertainty with President Trump's upcoming 25% tariffs set to begin next week.
TD Cowen analyst Itay Michaeli joins Catalysts host Madison Mills and Basenese Group founder Lou Basenese to discuss the potential impact.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
Talk me through this call, you called the worst possible outcome for automakers, why?
It was close to the worst outcome, and thank you for having me, of course. Um, you know, expectations and the weeks leading up to it had become more uh positive in terms of what the outcome could be. It was only 25% uh tariffs. Now, there are some exclusions we can talk about, but but certainly, by our estimation, would have a significant impact, potentially here, over the near term. Over the longer term, there could be substantial mitigating actions that uh could substantially lower the impact. But there'll still, even there, be potentially a lingering negative impact on the industry. And of course, it creates a lot of incremental uncertainty in the near term.
Lou, where do you agree and disagree with that?
No, I agree. It creates tremendous uncertainty. My difficulty is, how do you model that out? And maybe it's a question for for you, Etai, is, how do you model out that you might have a 25% tariff for three days or 13 days? Or, you know, where's the sensitivity analysis? How do you take that into account for your models?
Yeah, it is challenging. I think in the models you have to assume that the tariff uh is here to stay. Um, also, we we did not assume any real kind of price increases to offset some of it. But the key delta in the short-term and longer-term thinking is, do you see production capacity uh for vehicle assembly uh get moved into the US? Of course, if that were to happen, and to your point that that even that does not happen overnight, that could be several months at the least, maybe even longer than that. Then once that happens, the impact does get mitigated, uh quite a bit. Again, there's still uncertainty, I would note. We're still waiting on additional detail. Could there be additional tariffs? That's your point. We still don't have, I think the industry itself is still kind of you know, crunching the numbers themselves in terms of what this actually means. But you know, over the longer term, particularly if you were to have a production capacity move, it would, of course, mitigate, you know, substantial initial impacts of such tariffs.
And what we're trying to do for our audience of investors here is, at least walk them through how each individual company and each ticker could potentially be impacted. So Etai, I'm curious, can you walk me through the likes of Ford? You say it's the least exposed versus Atlantis, perhaps the most exposed. What are you looking at to indicate that?
Sure. I think both Atlantis and GM are substantially exposed, particularly because they do have quite a bit of very profitable truck capacity, pickup truck capacity, uh in Mexico. Ford has, um, the most US exposure amongst the D3 uh for production. Um, so so it would be better positioned. Then of course, Tesla, outside of the Detroit 3, is sort of the relative winner here, just given 100% US production, substantial US sourcing for Tesla, as well as potential market share gains, as some of the segments that the Model Y competes in would have a substantial portion of the vehicles competing with Tesla under some sort of a tariff impact. So it really just comes down mostly to, uh, the footprint and exposure that an individual automaker has uh in Mexico and Canada. Atlantis and GM do have substantial exposure. And of course, GM does have other imports as well, um, from other countries in the world that could be another incremental impact to consider there as well.