Is the U.S. auto sector ready for a policy-induced storm? Bernstein weighs in

Investing.com -- The U.S. auto sector is heading into a potentially severe disruption, with Bernstein warning that upcoming tariffs could move the industry from “earnings pressure to supply chain fragility.”

The White House’s March 26 proclamation imposes a 25% tariff on all imported vehicles starting April 3, with key parts—including engines and electronics—set to follow by May 3.

While a blanket vehicle tariff is damaging, the parts tariffs are what truly raise alarm. Bernstein cautions that “parts tariffs could break the system,” pushing Tier 2 and Tier 3 suppliers—already operating on thin margins—toward insolvency.

The cascading effect could halt production lines and force OEMs to intervene with financial support. Even a 60-day disruption could “trigger supplier bankruptcies, halt production lines, and leave OEMs scrambling.”

According to Bernstein, markets appear to be underestimating the risk. Auto stocks initially dropped about 10% but have since shown limited differentiation.

The investment bank believes the market is still assuming a policy reversal will arrive in the second half of the year and is not fully pricing in the potential inclusion of parts.

“A sector-wide, backroom deal with the White House may still be possible, but until that materializes the downside risk is not priced correctly,” analysts led by Daniel Roeska said.

The exposure varies sharply across automakers. General Motors (NYSE:GM) is the most vulnerable due to its high reliance on U.S. revenue, significant import exposure, and low domestic content.

Bernstein estimates GM’s EBIT could drop by 79%, EPS by 81%, and free cash flow by $4.1 billion under its worst-case scenario.

Ford (NYSE:F) is less exposed, facing a 16.5% EBIT decline, while Stellantis (NYSE:STLA) is expected to weather the storm with the least impact, owing to its higher U.S. content and broader geographic mix.

Even if the tariffs are reversed quickly, analysts stress that the operational damage may already be done.

Re-sourcing parts is not immediate and can take months, during which vehicle assembly could be disrupted by shortages. With limited cash buffers, especially among suppliers, and payment deadlines looming just 10 days after import, the system’s liquidity is at risk.

“The market expected noise — it got regime change,” Roeska said.

“Most investors priced in symbolic tariffs or extended consultation periods. Instead, they got a sweeping, immediate regime with no off-ramps. The surprise wasn’t just the “what,” but the “how soon” and “how hard”,” he added.

This article first appeared in Investing.com