Investing.com -- UBS analysts believe that a sustained 25% tariff on auto imports from Mexico and Canada is unlikely, though they acknowledge that tariffs may be imposed temporarily.
With April 2nd’s "Liberation Day" approaching, UBS has revisited its tariff impact analysis, citing recent discussions with industry contacts.
UBS outlines four potential tariff scenarios for auto suppliers and five for OEMs. In a worst-case scenario, where a 25% tariff is imposed with no cost mitigation, the industry would suffer severe earnings damage.
However, UBS sees this as an unlikely outcome. “We think this is an unlikely scenario,” stated the bank.
In a more moderate scenario, if suppliers are able to pass 50% of costs to customers, UBS says supplier EBIT could decline by 15% on average, while Ford and GM could see a 56% EBIT drop. If volumes decline as well, supplier EBIT could fall by 41%.
Despite these risks, the bank believes suppliers remain confident that they can pass costs on via price increases, potentially more effectively than during past supply chain disruptions.
However, this is said to put the burden on automakers to decide how much of the cost they can transfer to consumers without significantly damaging demand.
UBS also notes that auto stocks are already trading near historical lows, making some names look attractive.
"When we look at where companies are trading on Scenario 3 earnings, BWA, APTV, and VC look ’cheap,’ while F, LEA, and MGA look ’expensive’ relative to historical averages," said UBS.
Ultimately, UBS believes that while the announcement of tariffs on April 2nd could pressure auto stocks in the short term, a prolonged 25% tariff is unlikely.
Within OEMs, UBS prefers GM over Ford, and among suppliers, they favor APTV, DAN, and BWA as better positioned to withstand trade disruptions.