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Tariff uncertainty looms on global demand

We have analyzed Q1CY25 results and guidance of key global auto PV and CV original equipment manufacturers (OEM), such as Tesla, Ford, General Motors (GM), Mercedes Benz (MB), Stellantis, Toyota, Suzuki, Hyundai, Volkswagen, BMW, Audi, Porsche, Volvo, Paccar, and Daimler Trucks to gain insight on demand, profitability and electrification trends. The key takeaways are: 1)OEMs like Mercedes Benz (MB), Porsche have downgraded their volume and margin guidance, Stellantis and Ford suspended guidance amid tariff uncertainty while Tesla likely to give guidance post Q2CY25 results, 2) Some US OEMs re-focusing on ICE segment amidst muted BEV regulatory support and outlook, 3) legacy OEM expect market share pressure in China to persist in CY25 as meaningful BEV new launches from them are expected only from CY26, 4) local for local capacity being discussed and restructuring of high-cost EU production, 5) margin pressure to persist (even ex of tariffs) for most OEM in CY25, owing to continued pressure in China, and 6) medium- and heavy-duty truck market remains muted with volume contraction in the range of 6-16% for North America (seen downward revision) and volume contraction in the range of 1% to 14% for the EU, as per Daimler Trucks.

Tariff uncertainty looms on global demand: Most global OEM have tried to assess and give an estimated impact, while some refrained. Among that, notable was Ford, which assumes net impact of USD 1.5bn while GM expects the impact to be in the region of USD 4-5bn. Among EU OEM, Porsche and MB have revised down guidance, VW and Audi reiterated guidance (ex of tariff impact), citing assessment is still under process and difficulty predicting the impact. Ford and Stellantis have suspended guidance. BMW has already included the impact of ~1% in operating profit in Q4; hence, it has not changed its outlook. While the direct impact is still difficult to gauge (also due to rapid changes in development), the indirect impact on demand and demand slowdown is imminent. Most OEMs had earlier set a target of flat to slight volume growth in CY25, anticipating robust demand in North America, which will not hold, in our view, in current situation. EU is set to post slight growth, while situation in China remains challenging amid market share declines for legacy OEMs.

Downward revision in PV and CV outlook: The global production of PV is likely to drop ~2% in CY25, as per S&P Global Mobility’s April Outlook. For CY25, US production is set to decline by 9% YoY, Europe by 3% YoY, while China expected to grow by 1% as per S&P Mobility. Volvo and Daimler Trucks also have revised North America Class 8 market contraction in the range of 1-14% YoY vs earlier range of 4% growth to 9% contraction.

Read through for India-listed companies under our coverage: Slowing global PV growth as well as shrinking profit pools of global OEM in China, resulting in weakening position of legacy OEMs, are cause for concern for SAMIL; reiterate our Sell rating. Some US OEM have started refocusing on ICE and hybrid models, which means the ICE & hybrid product segment (starter motor) for Sona BLW could see growth in the medium term vs a structural decline expected earlier, even as issues around Tesla demand remains a concern for them. For JLR, China remains cause for concern while the outcome of US-EU tariff deal would be keenly watched. Muted global CV demand will remain cause for concern for Bharat Forge, especially as OEMs have downgraded NA Class 8 market growth for CY25.

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