• President Donald Trump slapped a 25% tariff on goods imported from Canada and Mexico (followed by a delay in the tariffs on Mexico for one month), and a 10% tariff on goods imported from China. We provide our updated thoughts on the implications for the European Automotive sector.

Relative Value

Over the weekend, President Donald Trump made good on one of his big campaign pledges by slapping a 25% tariff on good imported from Canada and Mexico, while also placing a 10% tariff on goods imported from China. This was followed two days later on Monday (3 February 2025) with a delay in the tariffs on Mexico by one month, after President Trump reached a deal with President Claudia Sheinbaum, allowing time for further negotiations. While the duties (including the threat of duties) are stated by the administration as primarily being used to place pressure on Mexico and Canada with respect to illegal immigration and fentanyl trafficking, it is also a shot across the bow for an auto sector that has offshored a large chunk of manufacturing jobs to lower cost countries like Mexico in recent years. Unsurprisingly, investors sold down European auto names with shares of VW, Mercedes-Benz, BMW and Stellantis down by 2-5% on the day. Credit was slightly more resilient as slightly wider spreads bumped up against lower rates, although bonds of perceived losers, including VW and Stellantis, were quoted lower by less than a third of a point.

While auto stocks and bonds are once again being whipsawed by geopolitical concerns, the current dynamics are broadly in line with the thesis that we laid out when shifting to a Market perform recommendation (from Underperform) on European IG autos back in December (see 2025 Sector Snapshot: Euro Consumer). At the time we argued that there were near term risks from the still unquantifiable impact of from trade tariffs under the new Trump administration. However, operating metrics were comparing favorably with pre-pandemic levels, credit quality remained a pillar of strength, and the speed and magnitude of the repricing of auto spreads in the second half of 2024 left Autos as one of the widest trading sectors in the IG index. Therefore, while the outlook