Carmakers from Europe and the United States could lose up to 17% of their annual core profits if the US implements import tariffs on Europe, Mexico and Canada, S&P Global said on Friday. The report also warned of a possible credit rating downgrade.
Premium carmakers such as Volvo and Jaguar Land Rover, which operate mostly in Europe, as well as the General Motors Group and Stellantis, which produce many vehicles in Mexico and Canada, are the most vulnerable to the threat of higher tariffs, S&P said.
President-elect Donald Trump said on Monday he would impose 25% duties on imports from Canada and Mexico until those countries take action on drug trafficking and cross-border migration, a move that appears to violate a free trade agreement between the three countries.
Analysts and experts worry that the tariffs could have a worse impact on European automakers such as Volkswagen and Stellantis, and their suppliers, than direct tariffs on EU goods.
“We expect mitigation measures to make higher tariffs manageable, but the combined effects of tariffs, stricter CO2 regulations in Europe from 2025, and earnings pressure from stronger competition in China and Europe could increase the risk of a rating downgrade,” S&P said.
“A rating shift could occur if these tariffs are combined with other challenges in 2025,” it added.
Starting in 2025, the EU will reduce the average emissions limit from new vehicle sales to 94 grams/km from the current 116 grams/km.
S&P said the worst-case scenario for automakers includes a 20% tariff on light vehicle imports from the EU and UK to the US, as well as a 25% tariff on imports from Mexico and Canada. In this scenario: General Motors, Stellantis, Volvo, and Jaguar Land Rover could face a risk of more than 20% on their adjusted EBITDA projections for 2025, according to S&P’s analysis. The risk for Volkswagen and Toyota is between 10% and 20%. The risk for BMW, Ford, Mercedes-Benz, and Hyundai is below 10%.