Winners and losers: U.S. tariffs and their impact on auto part suppliers

With almost half of auto parts used in the manufacture of U.S.-owned automobiles coming from outside the country, the industry faces mounting costs of production and shrinking profit margins, while suppliers face competitive pressures to move production domestically. Faced with an “equal opportunity disruptor,” who wins, and who loses from shifting U.S. trade policy?

Mexico and Canada are the main sources of exported vehicles and components into the U.S. and also the major buyers of U.S. exports. Supply chains between these three countries have become so increasingly seamless and the composition of American cars with foreign-made parts has become so integrated that the National Highway Traffic Safety Administration does not distinguish between American-made, Mexican-made, or Canadian-made content within these vehicles.

Additionally, the North American supply chain is deeply interconnected across all three USMCA countries. According to data from the Cato Institute, an engine, transmission, or other automotive component may cross the U.S.-Canada and U.S.-Mexico borders up to eight times before being incorporated into a finished vehicle. For now, the 25% tariff does not apply to auto parts that meet the criteria for preferential treatment under the U.S.-Mexico-Canada Agreement (USMCA).

But once the USMCA triggers its six-year review mechanism in 2026, exposure to tariffs varies among some of the larger players in the auto parts industry.  

Israel-headquartered Mobileye (NASDAQ:MBLY) develops self-driving technologies and advanced driver-assistance systems (“ADAS”). Mobileye outsources the manufacture of its EyeQ circuits to Netherlands-based STMicroelectronics (STM) which then manufacturers these components in facilities across Europe. This insulates the company from the brunt of U.S. tariffs, and thus enabling the stock to absorb most of the negative tariff headlines. Over the last month, Mobileye (NASDAQ:MBLY) shares have performed in-line with the S&P 500.

The same is true for Allison Transmissions (NYSE:ALSN) which manufactures its propulsion systems primarily at its Indianapolis, Indiana headquarters. While the parts to make those systems come from suppliers across the globe, the company’s stock has been relatively stable given its limited exposure to import tariffs.

By taking out some of the noise of earnings and other idiosyncratic influences, these auto parts stocks have also outperformed the S&P 500 over the past month during which time the tariff-tantrum has been most disruptive: Modine Manufacturing Company (NYSE:MOD), Gentex Corp (NASDAQ:GNTX), BorgWarner (NYSE:BWA), Goodyear Tire & Rubber Company (NASDAQ:GT), and LKQ Corporation (NASDAQ:LKQ).

On the other side are those that seem most vulnerable, including Swiss-based Aptiv PLC (NYSE:APTV) – which morphed from Delphi Automotive, a former division of General Motors (GM). Aptiv (NYSE:APTV) makes vehicle electrical architecture as well as security, comfort, and convenience components. The company’s manufacturing is spread out through 49 countries, including the U.S., China, Mexico, India, and Europe with its largest footprint in the U.S. With a greater exposure to overseas manufacturing -- and as a consequence import tariffs -- Aptiv (NYSE:APTV) shares have been under modest tariff-related pressure and are down 10% over the past month.

Other underperformers to the S&P 500 include: QuantumScape Corp (NYSE:QS), Magna International (NYSE:MGA), Visteon Corp (NASDAQ:VC), Lear Corp (NYSE:LEA), Dorman Products (NASDAQ:DORM), Autoliv (NYSE:ALV), and Genuine Parts (NYSE:GPC).