Goodyear Tire & Rubber: A Leveraged Play on U.S. Manufacturing Resilience Amid Trade Headwinds

In an era of escalating trade tensions and protectionist policies, Goodyear Tire & Rubber (GT) has positioned itself as a rare beneficiary of U.S. tariff regimes. While peers struggle with the 25% Section 232 duties on non-USMCA-sourced tires, Goodyear's strategic North American production footprint and minimal tariff exposure are creating a 10.5% cost advantage over competitors. This edge, combined with disciplined financial restructuring and undervalued shares, makes GT a compelling contrarian play.

The Tariff Advantage: A Structural Moat

The U.S. tire market is a battleground for imported goods: over 55% of total sales come from non-USMCA countries (Mexico, Canada, and the U.S. are exempt from tariffs). Goodyear, however, sources just 12% of its U.S. sales from these regions, reducing its tariff exposure to one-quarter of the industry average. This translates to $300 million in annualized savings versus rivals like Bridgestone and Michelin, which face higher duty costs on imported tires.

The math is clear:
- Competitors pay tariffs on 55% of their U.S. sales, while Goodyear's burden is just 12%.
- This cost differential, paired with Goodyear's “Goodyear Forward” initiative (a $1.5 billion cost-savings program), is driving margin expansion. Analysts estimate EBIT margins could rise from 8% in 2024 to 12% by 2025, outpacing an industry still reeling from raw material inflation.

Debt Reduction and Financial Engineering: A Turnaround in Motion

Goodyear is not just avoiding tariffs—it's also deleveraging aggressively. The company has slashed $1 billion in net debt since 2023 through asset sales, including the $735 million sale of its Dunlop brand and $500 million from off-the-road tire divestitures. These moves are accelerating progress toward its goal of reducing net debt/EBITDA to below 2.5x by end-2025, potentially unlocking investment-grade ratings.

Investors should note:
- $1.5 billion in cumulative savings from Goodyear Forward are already flowing to the bottom line.
- Free cash flow is projected to hit $600 million in 2025, up from $350 million in 2024, as tariffs and price hikes offset input cost pressures.

Valuation: A Discounted Champion

Despite its structural advantages, Goodyear trades at 12.5x 2025E EPS, a steep discount to peers:
- Michelin: 20x 2025E EPS
- Bridgestone: 18x 2025E EPS
- Cooper Tire: 15x 2025E EPS

BNP Paribas analysts argue this gap will close as inventory overhang resolves and premium products (like EV tires generating $150 million in Q4 2025 revenue) gain traction. Their $15 price target (27% upside from current levels) assumes a 15x multiple, aligning Goodyear with its healthier peers.

Catalysts to Watch

1. Inventory Destocking: Excess tire inventory in dealer channels has weighed on margins, but Goodyear expects a Q3/Q4 2025 inflection point.
2. Leverage Improvements: A net debt/EBITDA ratio under 2.5x could unlock share buybacks or dividend hikes.
3. EV Tire Adoption: The rollout of 18-inch EV tires targets a $1.2 billion U.S. market, with Goodyear capturing 10% share by 2026.

Risks and Mitigants

• Tariff Policy Shifts: A potential rollback of Section 232 duties under a new administration could erode Goodyear's advantage.
• Raw Material Volatility: Natural rubber prices surged 15% in Q1 2025, but Goodyear's cost savings and pricing power should offset these spikes.

Conclusion: Buy GT for Trade Policy Alpha

Goodyear is a tariff-driven value play with a 10.5% cost edge, $300 million in annual savings, and a path to investment-grade status. At 12.5x 2025E EPS, it's priced for pessimism about trade wars and inventory risks. However, with BNP's $15 target in sight and EV tire tailwinds materializing, now is the time to buy GT for exposure to U.S. manufacturing resilience.

Investors should act before the market catches up to Goodyear's hidden strengths—and before the next round of tariffs reshapes industry dynamics.