Automakers Are Struggling With Tariffs And EV Competition, Say Analysts

BofA Securities analysts John Murphy and Federico Merendi shared their thoughts on the automotive industry on Wednesday, after organizing the Global Automotive Summit on April 15-16.

Tariffs are expected to pose challenges for automakers, with more updates anticipated as Ford Motor Co. F and General Motors Co. GM release their first-quarter earnings, the analysts said.

Ford emphasized the need to compete more effectively with Chinese electric vehicle (EV) manufacturers, who lead in battery innovation and rapid model development.

While exploring potential partnerships, Ford is advancing its low-cost EV efforts through its Skunkworks initiative and expanding high-margin, stable subscription revenue from connected vehicles, with over 650,000 current subscribers, the analysts noted.

GM plans to leverage Cadillac's legacy further with participation in Formula One as a global growth strategy. Separately, Rivian Automotive Inc. RIVN outlined its ongoing collaboration with Volkswagen AG VWAGY and its focus on cost reduction and brand visibility.

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Demand for new vehicles remained strong leading up to the tariff news, with a continued uptick in foot traffic into mid-April.

First-quarter gross profit per unit (GPU) is expected to hold steady or match fourth-quarter levels. Automakers appear to be adopting a wait-and-see approach to tariffs, with no immediate plans to increase vehicle prices.

In the ratings agency panel hosted by the analysts, S&P classified both Ford and GM in the “High Risk” category, citing potential negative rating actions due to tariffs.

While Ford's BBB-/N rating might see a CreditWatch Negative status, S&P's timeline for such action remains uncertain, with a potential downgrade expected by late 2025.

The panelists agreed that tariffs could cost OEMs $6,000 to $8,000 per car, with the risk of passing costs to consumers. They expressed concern over supply chain disruptions, particularly regarding parts under USMCA protections and China's control over rare materials like batteries.

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