Ford Motor Company (NYSE: F) and other auto stocks traded higher on Thursday after German Chancellor Angela Merkel said she is open to the idea of reducing tariffs on U.S. auto imports. For now, trade tensions seem to be softening between the U.S. and Europe, but analysts say Ford investors should be more worried about the U.S. trade war with China.
China has said it will be implement a 25 percent retaliatory duty on U.S.-produced automobiles in response to U.S. tariffs on $34 billion of additional Chinese goods starting Friday. Those new duties are bad news for Ford, which shipped roughly 80,000 vehicles to China last year.
Ford has said it has no plans to raise prices on its vehicles in China, suggesting it will absorb the cost of any new Chinese tariffs.
CFRA analyst Efraim Levy says China is a much larger problem for Ford than Europe is.
“We think Ford is largely insulated from a battle with Europe, as most of what it sells in Europe is produced there and would therefore not be subject to potential countering European tariffs,” Levy says. “However, Ford would be more exposed to higher tariffs on its exports to China and increased costs in North America if tariffs are implemented.”
Ironically, Ford may also end up as collateral damage from U.S. import tariffs on steel and aluminum. Ford said in March that 95 percent of its steel and 98 percent of its aluminum are sourced within the U.S., but Morningstar analyst David Whiston says Ford could still suffer.
“We think the tariffs give U.S. steel and aluminum producers leeway to raise prices, which, if the tariffs last a long time, eventually flow to the automakers,” Whiston said.
The longer the trade war drags on, the more likely its impact could be much broader.
“An increase in input costs might have a temporary impact on margin but, if the impact were large enough to cause a downturn in auto demand, given the industry’s capital intensity, the impact could be much more devastating,” Whiston says.
For now, auto analysts are cautiously optimistic for a quick end to the trade war.
CFRA has…
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