The Big Three automakers Ford (F), General Motors (GM) and Chrysler-owner Stellantis (STLA) face a huge reduction in profits from a prolonged tariff war, according to analysts at Bernstein, adding to growing fears that an escalating trade war between the U.S. and its nearest neighbours could effectively wipe out profits for the auto industry.
As investors eye whether President Donald Trump will in fact persist with his 25% tariffs on Mexico and Canada that came into effect on Tuesday, analysts at the firm have detailed the potential hit to Detroit automakers should it last.
FCF Hit Expected at D3
Bernstein estimates a 60% average decline in free cash flow (FCF) for the three carmakers, as it calculates tariffs would raise vehicle costs by around 3% for U.S.-built models and 20% for imports. Four-star analyst Daniel Roeska reckons on this adding about $110 million a day in costs for the Big Three, or about $40 billion annually without mitigation. Last year the three companies generated about $34 billion in operating profit.
Detailing the scale of the impact, Roeska stated that GM’s FCF could drop 64%, or by around $6.7 billion, while Ford’s could decline 39%, or around $2.9 billion. Stellantis could see a 38% fall worth about $3.5 billion in lower FCF. Last month GM CEO Mary Barra said the company thought it could mitigate up to 50% of potential North American tariffs. Ford CEO Jim Farley warned 25% tariffs on Mexico and Canada would spark “chaos” and “blow a hole in the U.S. industry that we have never seen.”
It comes after Barclays analyst Dan Levy estimates tariffs could effectively wipe out all profits for the D3. According to Levy, Ford is “less impacted” due to its “far less” reliance on Mexico than GM. Indeed, in 2024 GM sourced 22% of sales from Mexico while the figure for Ford was just under 15%, according to S&P Global Mobility.
Levy said that “it’s critical to be mindful of further volatility ahead, with the tariff/trade overhang likely to remain for the time being until there is more certainty on the end outcome,” although short-term weakness in the stocks may present “buying opportunities.”
Meanwhile investors will be hopeful that none of this comes to pass. Commerce Secretary Howard Lutnick said Trump will “probably” announce a compromise with Canada and Mexico as early as Wednesday. Speaking on Tuesday on Fox Business he suggested the U.S. might meet Canada and Mexico somewhere “in the middle” to “work something out” on tariffs. Canada responded to the U.S.s tariffs with levies of its own, while Mexico plans to unveil retaliatory measures this weekend.
Shares of the Big Three are down about 11% on average since the November 5th presidential election.
Is Ford Stock a Buy Right Now?
Overall, Wall Street has a Hold consensus rating on Ford stock, based on four Buys, eight Holds and three Sells. The average F price target of $10.76 implies around 18% upside.
