Auto OEMs' Suspension of Earnings Guidance Understandable Given Ongoing Lack of Tariff Clarity

Morningstar DBRS published a commentary in the wake of several automotive original equipment manufacturers (OEMs) having suspended their respective 2025 earnings guidance given the increasing uncertainty attributable to the tariffs on autos and auto parts.

Key highlights include the following:
-- While the tariffs on complete auto vehicles and parts represent meaningful cost burdens on the auto industry, the outlook for the sector is clouded further given the ongoing revisions and lack of clarity regarding the implementation of such policies.
-- The tariffs notably undermine the U.S. auto market in which several OEMs were hoping to generate favourable earnings to offset anticipated weakness across other regional markets, including Europe and China.
-- While U.S. sales volumes have proven resilient thus far in 2025, this likely reflects pulled-forward demand, with consumers electing to expedite automotive purchases in the aim of avoiding eventual price increases caused by the tariffs.
-- We note that the supply base is more vulnerable to tariffs given their typically weaker financial profile(s) compared with the OEMs. Accordingly, financial stresses resulting from the tariffs could cause certain suppliers to stop production of certain components, which could potentially lead to widespread production disruptions across the sector.

"Uncertainty around the ultimate cost burden caused by the tariffs¿exacerbated by the ongoing revisions and adjustments to such policies¿amid questions as to how this will affect vehicle demand, has significantly limited the earnings visibility of the auto sector", said Robert Streda, Senior Vice President of European Corporate Ratings at Morningstar DBRS. "While such developments could also eventually result in negative credit rating implications for certain automotive companies, we note that the financial profiles of most automotive issuers that we rate are at solid levels (vis-à-vis their respective credit ratings), having benefitted from rather favourable industry conditions over the several previous years."