US President Donald Trump’s chaotic approach to global trading relationships continues to unsettle equities markets, with the automotive sector in his crosshairs this week. Trump has announced a 25% tariff to be imposed on all imported vehicles and vehicle parts as part of his wider strategy to raise revenues to pay for tax cuts as well as bring manufacturing back to the US.
This follows Trump’s imposition of wide-ranging tariffs on China, Mexico and Canada earlier this year as well as the introduction of new duties on steel and aluminium imports. Trump is far from done, threatening to detail even more ‘reciprocal’ tariffs on countries that he believes to be treating the US unfairly. These new tariffs are expected to be announced on 2 April, a date Trump is proclaiming to be ‘Liberation Day’.
The tariffs on the automotive industry are expected to throw global supply chains into disarray. In addition to imports of assembled vehicles from Mexico and Canada, the US auto industry is highly reliant on parts and components imports from its neighbouring countries. Indeed, with some parts crossing borders several times during manufacture, disentangling the US from the regionally integrated supply chain will be far from simple.
This complexity means it’s not surprising that the tariffs will hit fully imported vehicles first before tariffs are introduced on imported components within the next month. The BBC estimates that the US imports around 8 million passenger vehicles a year, representing $240 billion in trade. The reverberations of this hit to global trade will be felt around the world, from Mexico and Canada to Germany, Japan, and South Korea.
By some estimates, Porsche and Mercedes-Benz Group alone could face a $3.7 billion blow from the tariffs. Vehicle manufacturers saw their stock prices soften as markets digested the news – Hyundai Motors, Toyota Motors, Nissan, Volkswagen, Mercedes and Porsche all registered dips of between 1.5% and 3.7% in their value yesterday. US manufacturers were hit even harder.
Yesterday, General Motors fell 6.85%, Stellantis dropped 4.23% and Ford was down 3.25%, with the respective declines based on their perceived reliance on vehicle and vehicle component imports from Canada and Mexico. Tesla stock, which is still down nearly 27% for the year-to-date, bucked the trend to close slightly up, helped by the perception that US assembly and a high percentage of local content will protect its revenues and margins.
Trump’s tariffs, should they endure, are expected to add thousands of dollars to the cost of new vehicles in the months ahead. Even if carmakers decide to respond by reshoring manufacturing or firing up dormant factories, the process of reversing globalisation will be long and expensive. Capex and operating costs may increase dramatically.
This unfolds at a time when the automotive industry faces difficult transitions. Chinese and Indian carmakers are rapidly gaining ground in many global markets, challenging the established automakers with lower cost cars. Furthermore, the industry is making a challenging shift from internal combustion engines to electric motors. The move to electric vehicles (EVs) is expected to create new winners and losers in the years ahead.
While Tesla is synonymous with EVs in the US market, growing competition from new EV brands and established carmakers alike are challenging its position in the global market. Brand damage due to Tesla CEO, Elon Musk’s, association with Trump and right-wing populists in Western Europe has hurt Tesla’s sales in many markets. Meanwhile, challenger brands like China’s BYD are making strong inroads into the global EV market at Tesla’s expense (the brand is not sold in America).
BYD recorded revenues of $107 billion for 2024 and reported a 29% jump in sales from the previous year with deliveries of 4.27 million cars. By comparison, Tesla’s 2024 revenue was $97.7 billion having delivered 1.79 million battery-powered vehicles, representing a year-on-year decline of 1.1%. Not only does BYD deliver affordable cars, it has also showcased leading-edge technology like ultra-fast charging and free intelligent driver assistance.
BYD stock is up 42.57% year to date, with a P/E ratio of 28 compared to around 135 for Tesla. It is important to note, however, that the investment thesis that Tesla bulls use to justify its valuation is that the company is building robotics, artificial intelligence and autonomous taxi businesses, which they believe will be far more valuable than its passenger cars business. Tesla is, thus, being valued as a potential technology disruptor, not just a car manufacturer.
Our quality-style managers steer clear of capital-intensive and cyclical sectors of which the automotive industry is one, instead prioritising investment in more defensive sectors where the goods and services are actually consumed. This approach offers much higher levels of earnings stability amid market turbulence. However, our broader tracker funds do give clients exposure to the potential growth of companies like Tesla, which are shaping the future of mobility. This balanced investment strategy mitigates volatility while capturing long-term growth opportunities for our investors.
“There’s probably not a vehicle on the market today that wouldn’t be affected in some form or fashion by tariffs.”
– Peter Nagle, automotive economist for S&P Global Mobility
“The performance of a car manufacturer is determined by competitors whose yields are low. You are governed by your competitors.”
– Terry Smith, chief executive of Fundsmith
Global News
- Trump said on Wednesday that he would impose a 25% tariff on cars and car parts from 3 April, which will hit foreign brands as well as American ones, like Ford Motor and General Motors, which build some of their vehicles in Canada or Mexico. This is likely to raise prices for American consumers and throw supply chains into disarray. He has indicated that trading partners would receive possible exemptions or reductions.
- The EU is preparing for a significant wave of tariffs that could impact the bloc as soon as next week, with a variety of powerful trade-policy tools available as potential countermeasures. Trump has announced plans to introduce reciprocal tariffs on 2 April, claiming they will balance what he considers unfair duties on US goods, as well as non-tariff barriers like domestic regulations and tax policies, including the EU’s value-added tax. These tariffs follow Trump’s recent announcement of measures targeting the automotive industry.
- The International Monetary Fund sees the US economy shifting into a lower gear this year as Trump pushes forward with aggressive tariffs but doesn’t see a recession on the horizon. “Large policy shifts have been announced, and the incoming data is signaling a slowdown in economic activity from the very strong pace in 2024,” its spokesperson, Julie Kozack said yesterday. “All of this said, recession is not part of our baseline.”
- European banks are warning of a decline in US equities while Wall Street predicts that the selloff has ended, indicating a growing geographical divide over stock market predictions. Strategists at Switzerland’s UBS Group think the S&P 500 Index could see another slump of around 8%, while the UK’s HSBC double-downgraded US stocks. Yet, Morgan Stanley sees tailwinds for a “tradeable rally” with JPMorgan Chase & Company also saying that the rout has ended. Bloomberg attributes this divide to uncertainty around Trump’s tariff moves.
- Ahead of Trump’s statement on Wednesday suggesting that Russia might be delaying a Black Sea peace deal in the Ukraine war to push for the lifting of sanctions on its banks and exports, the White House announced on Tuesday that negotiations in Saudi Arabia had led to agreements ensuring safe navigation in the region. On Wednesday, the EU voiced concerns over the geopolitical implications for the bloc and urged citizens to stockpile supplies for 72 hours in preparation for potential disruptions. Meanwhile, it appears that the US aims to control major future infrastructure and mineral investments in Ukraine, potentially securing a veto over Kyiv’s other allies and complicating its path to EU membership.
- Istanbul Mayor Ekrem Imamoglu, President Recep Tayyip Erdogan’s top rival in the upcoming elections, was jailed last Wednesday, pending his trial on corruption charges, and he was removed from office on Sunday. Within 30 minutes last Wednesday, global investors dumped huge volumes of lira, slashing its value by 10% to a record low. Following the arrest, Turkey’s capital markets regulator banned short selling and relaxed share buyback rules on Sunday to stop more equity losses after its benchmark index tumbled last week.
- UK inflation came in at 2.8% for February, below expectations of 3% and strengthening the case for the Bank of England to cut interest rates again in May, with traders seeing a 72% chance of a reduction. January’s inflation was 3%, and the slowdown in inflation provided a morale boost for Chancellor of the Exchequer Rachel Reeves ahead of her Spring Statement. During this statement, on Wednesday, she squeezed the welfare budget further and boosted defense spending on the back of global instability.
- Tesla, set to launch its electric vehicles in Saudi Arabia on 10 April, saw a brief stock resurgence following an “all-hands” company meeting last Thursday, where owner Elon Musk outlined ambitious plans. Shares rose 5% last Friday, 12% on Monday, and over 3% on Tuesday. However, the company continues to face challenges in Europe, where sales have declined for the 10th time in a year, dropping 40% year-on-year. In the first two months of the year, Tesla’s sales fell 43%, while the broader industry grew by 31%, according to the European Automobile Manufacturers’ Association. Despite these setbacks, Tesla will be exempt from the 25% tariffs recently imposed by Trump, as its vehicles are manufactured in the US.
- Porsche and Mercedes-Benz Group will be hit hardest by Trump’s latest trade tariff salvo, facing a potential $3.7 billion blow from new US tariffs on imported cars. Trump’s additional 25% duties, to be collected from 3 April, could wipe out around a quarter of Porsche and Mercedes’ projected 2026 operating earnings, according to Bloomberg Intelligence. To offset the impact, manufacturers may have to raise prices or shift more production to the US.
- On Monday, Chinese EV maker BYD reported $107 billion in revenue for 2024 as it crossed the $100 billion level for the first time, beating Tesla’s annual revenue by about $10 billion. This came a week after BYD said it had developed a charging system that will give its latest EV model 250 miles of range after a five-minute charge. BYD, which could become China’s most valuable non-state onshore stock, has seen its shares go up more than 50% this year.
- DeepSeek released updates to its V3 model this week that promise to deliver better programming capabilities, underscoring the Chinese AI startup’s intent to remain a step ahead of competitors. The update claims to address real-world challenges while setting benchmarks for accuracy and efficiency. Its recent achievements, including an R1 model that performed as well as ChatGPT, stunned the industry and sparked a selloff in US markets. Google is searching for a way to make its search more accurate in response to chatbots’ increasing popularity.
- Glencore is cutting planned coal production as the company, the world’s biggest shipper of the fuel, looks to halt a prolonged collapse in prices. The giant commodity trader will produce between 5 to 10 million tons less coal than previously expected at its Colombia mine. This move comes as coal prices remain depressed, with the slump to the lowest levels since mid-2021 having been driven by record production in India and China.
- As at Thursday’s close the S&P 500 was 0.45% up for the week.
Local News
- Local vehicle and component manufacturers remain uncertain about whether their duty-free export access to the US will be impacted by Trump’s recent announcement of a 25% import tariff on automotive goods. On Thursday, industry association Naamsa stated that it was unclear whether the sector’s benefits under the African Growth and Opportunity Act would be affected by Trump’s decision. Meanwhile, ongoing weakness in the new-vehicle market, combined with rising competition and shrinking profit margins, is expected to drive more independent dealerships out of business, according to Brandon Cohen, chair of the National Automobile Dealers’ Association, who spoke on Monday.
- Trump has officially appointed Leo Brent Bozell III to succeed Reuben Brigety as ambassador to South Africa. Trump said that Bozell III is the Founder of the Media Research Center, which has exposed fake news hypocrites for many years. “Brent brings fearless tenacity, extraordinary experience, and vast knowledge to a Nation that desperately needs it.”
- South Africa’s foreign policy will not undergo immediate changes, but the government must employ “tactical finesse” to navigate the evolving global landscape, Deputy Minister of International Relations Alvin Botes said on Tuesday. He highlighted a key challenge for the new administration, being the close alignment of some coalition partners with organisations like AfriForum and Solidarity, which in turn have strong ties to the US government. This comes amid tensions with Washington, as South Africa’s policies have drawn criticism from Trump.
- Moody’s expects South Africa to have an “orderly” National Budget approval next month, increasing pressure on the ANC and DA to come to a compromise. The ratings agency said in a note that it expected a budget compromise deal before the Budget vote next month, with the ANC still canvassing support for the Budget, which includes a VAT hike. There have been only two such hikes in 30 years.
- Government could suffer a potential revenue shortfall of R18 billion in 2025/26 because National Treasury overestimated GDP growth, PwC said on Wednesday. This would require National Treasury to look at further tax increases or stringent expenditure cuts if it is to remain committed to its fiscal consolidation and debt reduction strategy. PwC believes National Treasury’s medium-term growth forecast of 1.8% is optimistic, with the financial services firm projecting 1.1%.
- The beer industry has warned that the above inflation increase in excise duties will drive more financially constrained alcohol consumers towards illicit alcohol in the black market, resulting in devastating health and employment consequences. Finance Minister Enoch Godongwana announced a 6.75% increase in excise duties a fortnight ago as part of the new fiscal policies. The beer industry contributed R19 billion towards GDP, accounted for 34% of taxes, and created more than 210,000 jobs.
- South Africa, with the help of the World Bank, has a R54.77 billion plan to reverse the decline in services and infrastructure in eight of its biggest cities. It will use a third of this in the form of a loan from the World Bank, with the balance being from government to finance grants for cities that meet targets in providing water, sanitation, electricity, and solid-waste processing under the Metro Services Trading Programme.
- Government is also establishing the National Water Resources Infrastructure Agency, which will be responsible for streamlining water resource management, generating private sector investment in the sector, and improving water quality. This comes as President Cyril Ramaphosa yesterday blamed criminal syndicates stealing water tankers for the crisis.
- Transport Minister Barbara Creecy said on Sunday that her department was in the final stages of concluding a memorandum of understanding that would establish a private sector participation unit with the Development Bank of Southern Africa (DBSA) and the National Treasury, with plans in place for the DBSA to host the unit. This is in a bid to facilitate private investment in ports and rail infrastructure and replicate the independent power producers’ office’s success.
- Yesterday, Statistics South Africa’s producer price index data suggested a potential reduction in inflation, which could pave the way for the South African Reserve Bank to lower interest rates at its next meeting in May. However, the latest Essential Food Price Monitoring report from the Competition Commission, also released yesterday, highlighted that the continuous rise in food prices remains a serious threat to food security.
- Statistics South Africa reported yesterday that while international tourism remains 12.8% below 2019 levels, the Tourism 2024 report confirmed South Africa’s status as a leading destination last year. As the sector continues to recover, the economy is expected to benefit, with international arrivals rising 7.3% in February compared to the same month last year. Additionally, the agency’s latest data revealed that, in current prices, revenue for the tourist accommodation industry grew by 12.1% in January 2025 compared to January 2024.
- Start-up costs for Old Mutual’s newly launched app-only banking division are estimated to top R5 billion by 2027 as the insurer doubles down on its ambitions in the increasingly crowded and fiercely competitive market. Old Mutual has already spent R2.8 billion on the business. The launch of a digital banking unit marks Old Mutual’s return to banking after selling its controlling stake in Nedbank.
- Remgro reported a 38.7% rise in headline earnings for the six months to December boosted by improved operational performances from most of the investee companies, most notably Rainbow Chicken, RCL Foods, Outsurance and Mediclinic. Yet, its Community Investment Ventures Holdings and Seacom units reported a sharp decline in contributions to Remgro’s earnings, mostly because of higher borrowing costs and repairs. Remgro declared an interim dividend of 96c.
- As at the time of writing, the rand was 0.5% stronger against the dollar and the ALSI was 0.1% up for the week.
Sources: Dynasty, IOL, Business Report, News24, CNN, Bloomberg, AFP, New York Times, BBC, etc.
