Global Auto: Tariffs in the Driver’s Seat
Global automotive value chain faces disruption; production outlook downgraded. The global automotive industry is beginning to feel the strain from the recently announced US trade tariffs, with severa...
Chief Investment Office - Hong Kong version27 Jun 2025
  • Trade tariff disruption surfacing, with global OEMs expecting earnings hits
  • US tariff uncertainty an overhang; global automakers with exposure to the US market could be hit
  • Long-term shift to US manufacturing slow; global automakers face complex strategic adjustment
  • Global vehicle sales expected to contract by 1% in both 2025-2026; remain cautious on the sector
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Global automotive value chain faces disruption; production outlook downgraded. The global automotive industry is beginning to feel the strain from the recently announced US trade tariffs, with several global automakers anticipating demand to soften ahead amid potential negative impacts on their earnings during the recent results briefings, including Ford (by USD1.5bn) and General Motors (of USD4-5bn). In response, S&P Global Mobility has revised its global vehicle production outlook, now projecting 7%/5% volume declines in Europe and North America, respectively.

This is already reflected in the data with new car registrations in the EU falling 1.2% y/y (4M25), attributable to the ongoing unpredictable global economic environment. In contrast, the US auto market remained resilient since the tariff announcements in March with volume shipment up 3.2% y/y in April as consumers rushed to buy before higher prices hit the market. Underpinned by the strong demand, average vehicle transaction price rose c.1.7% m/m in Apr 2025.

US trade tariffs remain uncertain amid legal reversal. Uncertainty over US trade tariffs continue to cloud the outlook for the global automotive sector. The court of appeal has paused the court of international trade’s earlier decision to block the “Liberation Day” tariffs, including the 25% tariffs on imported cars and parts. The US tariffs on automobiles from Canada, Mexico, and other nations have sparked concerns about supply chain disruptions and rising consumer costs. The latest development implies that global automakers – European and Japanese automakers such as Volkswagen, Mercedes Benz, Subaru, and Honda, which have significant exposure to the US auto market, 5-30% – will continue to face trade uncertainty. Approximately 46% of the 16mn vehicles sold in the US in 2024 were imported.

Supply chain realignment will be long and costly process. The global automotive supply chain is highly integrated, and any shift could face significant strain, especially on global automakers in relocating suppliers. While punitive tariffs may eventually incentivise greater investment in US manufacturing, the path to meaningful reconfiguration will likely span several years given the entrenched global production networks. In the interim, automakers must recalibrate their pricing, production, and capital allocation strategies to preserve market share in the US while navigating near-term policy uncertainty. Hence, we estimate global vehicle industry sales to contract by around 1% each in 2025-2026.

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