(Reuters) – European and American carmakers are expected to lose 17 percent of their combined annual profits if the U.S. imposes tariffs on Europe, Mexico and Canada, S&P Global said in a report on Friday, warning of a credit crunch.
Luxury carmakers Volvo and Jaguar Land Rover, which manufacture mainly in Europe, and groups General Motors and Stellantis, which assemble most cars in Mexico and Canada, are particularly exposed to the threat of higher tariffs, S&P said.
WHY IT’S IMPORTANT
President Donald Trump on Monday said he would impose a 25 percent tariff on imports from Canada and Mexico until they crack down on drugs and illegal immigration, a move that appears to violate a trade agreement between the three countries.
Analysts and experts fear that the tariffs could be more damaging to European carmakers such as Volkswagen and Stellantis and their suppliers than any direct tax on EU goods.
IMPORTANT INFORMATION
“We expect that the mitigation actions will lead to higher tax rates returning, but the combined effect of tariffs, stricter CO2 regulation in Europe from 2025, and wage pressure from strong competition in China and Europe may increase the risk of a slowdown,” S&P said.
“Rate changes may occur where the tax includes additional windfalls for the year 2025,” it added.
CONTEXT
Starting in 2025, the EU will reduce average emissions from new car sales to 94 grams/km from 116 g/km.
BY NUMBERS
S&P said the worst-case scenario for carmakers would include a 20% tariff on US light car sales from the EU and the UK, and a 25% tariff on imports from Mexico and Canada.
In this situation, GM, Stellantis, Volvo and Jaguar Land Rover could see more than 20% of the planned adjusted EBITDA at risk in 2025, in the S&P analysis.
The risk is between 10% and 20% for Volkswagen and Toyota, and less than 10% for BMW, Ford, Mercedes-Benz and Hyundai.
(Reporting by Alessandro Parodi in Gdansk, editing by)