Global Autos: Joining the Dots on Production

• Following a period of relative calm during the Biden administration, the re-election of Donald Trump has thrust the global auto sector back into the spotlight. This includes the prospect of the US implementing fresh tariffs on vehicles imported into the US, but also whether, and to what extent, this may spark retaliatory action from the likes of China and Europe. In this report we will look to set the scene for investors with respect to the key challenges OEMs are facing in Europe, North America, and China, the options available to the sector to remedy these challenges, and importantly, which OEMs are currently the most exposed in each region.
• Overall, the North American market is relatively self-sufficient, with around 22% of global light vehicle sales only modestly ahead of the 18% of global production share. Ultimately, a 20% flat tariff on autos and auto parts – which Trump repeatedly mentioned during his election campaign to support the U.S. manufacturing sector – would present a near-term industry headwind depending on the OEM and the supply chain in place. “Home-grown” OEMs like Ford, GM and Stellantis would be less exposed, while OEMs like Jaguar Land Rover, Volvo Car, and Hyundai+Kia stand out as more exposed given the higher percentage of U.S. sales that are imported.

Relative Value

Prior to President Donald Trump’s first term in 2016, the global automotive industry was, like many industries, a huge beneficiary of globalization. Indeed, it allowed OEMs to rationalize global supply chains, and optimize the cost base while also affording significant flexibility to import/export vehicles to and from key markets to maximize operating efficiencies. This includes the rapid expansion of the automotive market in China. The strong market expansion and government incentives over prior decades in China steered demand towards locally produced vehicles, drove foreign OEMs and suppliers to explore a more localized approach via joint ventures and wholly-owned subsidiaries to establish production and supply chains in that region. This helped to bolster China’s production base, expand its manufacturing capabilities and technical know-how. This, coupled with superior technology and strong positioning in BEVs, has made Chinese OEM exports a threat to incumbent foreign OEMs in the US and Europe, as China now has become a formidable global competitor.