Trump signs off on second partial reversal of tariffs on autos in the last month implying more to come.
Trump signs off on a partial reversal of auto parts tariff (due to come into effect on May 3rd), including: (i) Auto parts tariffs will not stack on top of metal tariffs, (ii) OEMs can claim an “offset” to a portion of tariffs for US-assembled vehicles equal to 3.75% of the Manufacturer’s Suggest Retail Price (MRSP) of a manufacturer’s US production for the next year (equivalently, if a manufacturer builds a car with 85% USMCA content - could be sourced from the US, Mexico and Canada - then the manufacturer will effectively pay zero tariffs on that vehicle’s production).
We note that this is the second US tariff reversal in the last few months for autos, although we are concerned that an improving fundamental picture will not materialize in spread tightening given the (i) rhetoric used by Trump to downplay concessions (which feeds into headlines), (ii) overcomplexity of the current tariff regime (the official White House documents may appear misleading which could imply significant misreporting of tariff conditions).
This reversal was in-line with our expectation that Trump aims to achieve final assembly of vehicles in the US, but that he is willing to grant concessions on sourcing components. We also note that the increased regional value content (RVC) requirement of this reversal only represents a modest increase vs. current USMCA content rules (+10% vs. current RVC requirement) and thus we see more upside for OEMs than Trump’s comments would suggest (describing the reversal as providing “little relief” to OEMs, April 29th).
The timeline of tariff concessions granted by Trump can be summarized as follows:
- First concession: MX/CA imports partially exempted from auto tariff (the initial 25% tariff only applied to non-US content; the cumulative effect of this change plus the 25% auto parts tariff, effectively implied a 25% tariff applied to all non-US content; conversely removing the incentive to move final assembly to the US)
- Second concession: 25% parts tariff is now only applied to non-USMCA content & USMCA content is exempted but theoretically could come from US/MX/CA (in our view reinstating the incentive to move final assembly of cars to the US).
We are also constructive on the prospect of further auto tariff concessions, and we believe these are most likely to come in the following forms:
- USMCA exemption on Mexico/Canada imports could be broadened to include Autos (which currently applies to other goods) or existing USMCA agreement could be renegotiated early (due in 2026),
- Company- or country-specific exemptions; (specific exemptions granted to US OEMs, and/or country negotiations with the US could include autos as part of the final package).
1Q25 Results Round-up: (BBVA Credit View on 1Q25)
- Volkswagen: Marginally Credit Positive
- Traton: Credit Neutral
- Porsche: Credit Negative
- Stellantis: Credit Neutral
- General Motors: Marginally Credit Positive
- Renault: Credit Positive