Capital Ideas Podcast Autos: an industry disrupted
Apr 15, 2025
Danny Jacobs, a Fixed Income Investment Analyst at Capital Group specializing in the automotive sector, discusses the seismic shifts in the industry. He examines how tariffs disrupt production and supply chains, revealing vulnerabilities among smaller suppliers. The conversation dives into the transition to electric vehicles, highlighting competitive strategies from both legacy automakers and newcomers like Tesla. Jacobs identifies investment opportunities amidst these changes, emphasizing the need for adaptive management in the evolving commercial vehicle market.
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Tariffs Severely Impact Autos
- The auto industry is highly vulnerable to tariffs due to complex, multi-tiered global supply chains and thin profit margins.
- Retooling factories and relocating production takes years, making quick adjustments to tariffs nearly impossible.
Tariffs Threaten US Auto Demand
- Prior to tariffs, US auto demand was strong with rising incentives and pricing sustained at elevated levels.
- Any tariff-related price rises now will likely lead to significant volume declines due to stretched affordability and higher interest rates.
Regional Auto Market Differences
- Europe’s passenger vehicle market shrank due to affordability issues and rising competition, leading to factory closures.
- In China, EV penetration grows steadily while local brands gain share, putting pressure on traditional manufacturers.