Auto stocks slide as US tariffs send 'fatal signal' for trade

By Tom Westbrook, Ankur Banerjee and Amanda Cooper

SINGAPORE/GDANSK (Reuters) -Shares in some of the world's largest auto companies tumbled on Thursday after President Donald Trump put a wall of tariffs around the U.S. vehicle sector, adding to worries about the hit to global trade and to industry profits.

Trump said 25% tariffs on imported cars and light trucks would begin on April 3, and although the duties have been well flagged, shares in automakers from Frankfurt to Seoul tumbled.

As European markets opened, shares in Volkswagen, Europe's top car maker, dropped 3.4%, while those in luxury brands BMW and Mercedes-Benz fell 4%.

In Japan overnight, some $16.5 billion was wiped off transport stocks, according to LSEG data, as shares in Toyota fell 2.7%, Honda 3% and Nissan 2.2%. Hyundai Motor and Kia in South Korea dropped about 4% each.

Volkswagen is in the frame since 43% of its U.S. sales are sourced from Mexico, S&P Global Mobility estimates, as is Chrysler owner Stellantis, which along with Ford is one of the top producers of U.S. vehicles based in Mexico.

The head of Germany's car industry association said the tariffs are a "fatal signal" for global trade.

"The risk of a global trade conflict - with negative consequences for the global economy and growth, prosperity, jobs and consumer prices - is high on all sides," VDA President Hildegard Mueller said in a statement, calling for bilateral U.S.-EU talks to find a solution.

The U.S. administration had set a deadline of April 2 to unveil its broader policy on tariffs, meaning the hit to shares was less dramatic than when Trump first threatened non-U.S. manufacturers with extra charges.

But the signal - hurting allies and car buyers - was nevertheless unsettling for markets which have been slow to accept that the levies may become permanent fixtures and drive lasting changes in world trade flows.

"It's hard not to interpret this as anything but a cue for higher prices and lower growth," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore.

Almost half of the 16 million cars sold in the U.S. last year were imported, with a total value exceeding $330 billion, Goldman Sachs analysts said.

'HURRICANE-LIKE HEADWIND'

The new levies could add thousands of dollars to the cost of an average U.S. vehicle purchase and impede production due to the intertwined manufacturing operations developed over decades by car makers across Canada, Mexico and the U.S.

"In our view these initial tariffs (if they hold in their current form) would be a hurricane-like headwind to foreign (and many U.S.) automakers and ultimately push the average price of cars up $5,000 to $10,000," analysts at Wedbush said.

U.S. auto stocks tumbled in premarket trading on Thursday. General Motors slid 7% and shares in Ford fell almost 4%, as their supply chains are spread across North America.

Shares in Tesla slipped about 1%, with losses limited as the tariffs add to already punitive levies keeping Chinese electric vehicle makers mostly out of the U.S. market.

BYD, which is leading an overseas push by Chinese automakers, said it has no plans to sell into Canada or the U.S., but will grow global sales and build factories abroad. Its shares rose 2.3% on Thursday for a 53% gain so far this year.

Earlier in March, Volkswagen said it was working on back-up plans for how its passenger car brand could tackle U.S. tariffs on imports from Mexico, while BMW prepared to absorb the cost.

Investors are waiting for further details of a wider range of tariffs Trump says he will levy on trading partners next week.

"I think the big concern is that not only will these tariffs be disruptive and economically harmful, but they indicate that the Trump administration's shake-up of global trade won't necessarily end with next week's announcement," said Kyle Rodda, a market analyst at Capital.com in Melbourne.

"This potentially drags out trade uncertainty even longer and raises the question of how radical a change to the global trade order is Trump trying to bring about."

(Additional reporting by Tom Westbrook and Ankur Banerjee in Singapore and Anna Pruchnicka in Gdansk; Editing by Muralikumar Anantharaman)