US President-elect Donald Trump’s tariffs are expected to have a significant impact on carmakers across Europe and America. A report by S&P Global on Friday revealed that the automakers are estimated to lose up to 17 per cent of their combined annual core profits if the US government levies tariffs on Europe, Canada, and Mexico.
The ratings agency in the study said that these taxes could have a severe impact on the margins for the carmakers. Further, the agency warned of possible credit downgrades, reported Reuters.
In terms of exposure due to higher tariffs, the agency found Premium auto players such as Volvo and Jaguar Land Rover (who majorly produce in Europe) as most vulnerable, while General Motors and Stellantis (who assemble cars in Mexico and Canada at a large scale) also faced severe concerns emerging from elevated taxes.
Analysts noted that these tariffs could cause major damage for European carmakers such as Volkswagen and Stellantis and also make things worse for their suppliers, as against direct tariffs on EU goods.
S&P in its report said, “We expect mitigating actions will make potentially higher tariffs manageable, but the combined effects of tariffs, tighter CO2 regulation in Europe from 2025, and earnings pressure from stronger competition in China and Europe could increase the risk of downgrades. Rating transitions could occur where the tariffs compound other headwinds for 2025.”
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The agency further said that in a worst-case scenario, automakers can expect a 20 per cent tariff on US light vehicle imports from the EU and UK, while imports from Mexico and Canada will face a tax of 25 per cent. As per the S&P analysis, such an event could mean that GM, Volvo, Stellantis, and Jaguar Land Rover could end up facing more than 20 per cent of their projected adjusted EBITDA at risk in the coming year.
Notably, Trump recently said that his government would impose a 25 per cent duty on imports from Mexico and Canada until the countries manage to curb drugs and migrants crossing the US border.