BREAKINGVIEWS-Auto investors make bold bet on more Trump U-turns

By Neil Unmack

LONDON, April 30 (Reuters Breakingviews) - Auto investors are making a bold bet on more Trump U-turns. Volkswagen VOWG.DE, Stellantis STLAM.MI and Mercedes-Benz MBGn.DE have largely swerved the question of how much pain they expect from tariffs. While duties may clobber earnings and sales, valuations are not pricing in the worst.

It’s been over a month since Donald Trump unveiled tariffs of up to 25% on the United States’ car and parts imports, to force vehicle production back onshore. Yet the companies themselves are still unsure what it all means. On Wednesday, Volkswagen reiterated its financial guidance but said its forecast didn’t incorporate the levies, while Mercedes and Stellantis effectively scrapped their guidance. That said, the German group warned of “material impacts”.

Ordinarily, uncertainty bothers investors. Yet they too have been wary of pricing in too big an impact. True, car stocks have fallen since the tariff announcement on March 26, but not evenly. While Stellantis is down over 20%, Volkswagen shares have risen. They have performed no worse than that of Renault RENA.PA, which has almost no U.S. tariff exposure to worry about. As of Tuesday, the sector on average trades at 7 times earnings, or 5 times excluding the more richly valued Porsche. That’s in line with their two-year averages, according to Breakingviews calculations.

While analysts have admittedly started to lower their earnings forecasts, they are not baking in deep declines. On average, VW, Stellantis, BMW BMWG.DE, Mercedes and Porsche are expected to see earnings per share fall by only 12% versus 2024. In a worst-case scenario envisaged by analysts at Morgan Stanley, prolonged 25% tariffs could see the sector’s operating margin shrink from over 7% last year to around 5%, in line with Covid-era lows. That implies a much sharper year-on-year EPS drop.

There are reasons for the apparent nonchalance. Self-help can help offset tariffs: Volkswagen, for example, is busy cutting costs and rolling out new models. And Trump himself keeps backtracking: on Tuesday he announced steps to limit the impact of tariffs on carmakers who make parts in the U.S. He may ultimately lower the levy. And carmakers may be able to mitigate some of the cost by raising prices, or by using spare American capacity.

Still, if Trump is unable to secure trade deals with countries and keeps delaying his broad-based reciprocal tariffs, he is more likely to double down on sector specific levies, such as the auto ones. And the longer the uncertainty endures, the greater the likely hit to demand as customers defer purchases, and carmakers stall production. Regardless of investors’ sangfroid, a crash may yet loom.

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CONTEXT NEWS

Volkswagen on April 30 reiterated its expected revenue growth rate of 5% in 2025, but said that its targets did not factor in the effect of tariffs introduced by U.S. President Donald Trump.

Mercedes-Benz on April 30 abandoned its financial guidance for the rest of the year, whilst warning that tariffs were likely to have “material impacts”.

Stellantis on April 30 withdrew its financial guidance, citing tariff policies as well as “elevated uncertainties in the competitive environment”.

As of 0835 GMT on April 30, Stellantis’s shares were up 1.6%, Volkswagen’s were down 1.1% and Mercedes-Benz’s were down 1.1%.