Detroit Three automakers face profit wipeout risk from proposed Trump tariffs

Investing.com --  A potential 25% tariff, could wipe out all profits for the Detroit Three automakers, Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Stellantis (LON:0QXR) NV (NYSE:STLA), and will create major headwinds for the U.S. auto industry, analysts warn after Donald Trump’s proposed tariffs on Canadian and Mexican imports.

Analysts cautioned that the magnitude of these tariffs, if implemented, would severely disrupt supply chains, and will lead to a surge in vehicle prices.  

Among the Detroit Three, GM and Stellantis are most exposed due to their reliance on Mexican imports. Ford is less vulnerable as its F-series pickup trucks, a key profit driver, are not assembled in Mexico.

Suppliers like Aptiv (NYSE:APTV), American Axle&Manufacturing (NYSE:AXL), and Autoliv (NYSE:ALV) are also seen as highly exposed to the fallout, given their significant ties to Mexican and Canadian production.

“Surprisingly, GM&Ford appear most at-risk from a US parts sourcing perspective. Both names show the largest drop-off in US-Canada sourcing since 2017, which has mostly shifted to Mexico. Trump's tariff threat now increases material cost inflation risk,” Wells Fargo (NYSE:WFC) Securities analyst Colin Langan wrote.

Barclays (LON:BARC) analyst highlighted noted that original equipment maker’s (OEM) automakers typically operate on relatively thin margins, generally around 20%.

“With a 25% tariff on all vehicles coming from Mexico and Canada, as well as a 25% tariff on parts from Mexico/Canada, we estimate it would be a significant cost for the OEMs to bear,” Barclays’ Dan Levy noted.

While Barclays sees tariffs of this magnitude as unlikely, Wells Fargo highlighted the broader risks for the sector. “Autos are stuck in the middle of Trump’s geopolitics,” Langan added.

Analyst highlighted that a tariff-driven inflation and supply chain disruption should not be underestimated.