Navigating EU-US Tariff Crossroads: Asymmetric Risks and Opportunities in European Carmakers

The EU and US are racing against the July 9 deadline to avert a trade catastrophe, with automotive tariffs at the heart of the negotiations. European carmakers face asymmetric exposure to these tariffs, creating both risks and opportunities for investors. Let's dissect the landscape and uncover where to position capital for maximum reward.

The Tariff Landscape: A Looming Crossroads

The current framework imposes a 25% tariff on EU automotive exports to the US under Section 232, while steel and aluminum face 50% duties. A delayed 50% “reciprocal tariff” threat looms over all EU goods unless a deal is struck. The EU seeks to cap tariffs at 10%, mirroring the UK-US deal, while demanding exemptions for autos and steel. With federal courts questioning the legality of these tariffs, uncertainty remains—yet the stakes are high for automakers.

Asymmetric Exposure: Winners and Losers in European Carmakers

Not all companies are equally vulnerable. Let's break down the key players:

1. High Exposure: U.S.-Dependent Giants

• Stellantis (STLA): With ~40% of revenue tied to the U.S., its €11.5 billion in annual U.S. car sales make it a prime target. A 50% tariff would slash exports by up to €26.4 billion (per worst-case scenarios).
• Volkswagen (VOW): Exports €4.5 billion in cars annually to the U.S., with luxury brands like Porsche and Audi less price-sensitive but still at risk.
• Renault (RNO): Reliant on U.S. parts imports (25% of supply chain), it faces dual pressures from auto tariffs and 25% duties on aluminum components.

2. Moderate Exposure: Diversified Players

• Mercedes-Benz (DAI): ~20% of sales in the U.S., with a stronger focus on luxury and electric vehicles (EVs), which have higher price elasticity.
• BMW (BMW): Similar to Mercedes, its premium brand and EV push (e.g., iX3) may insulate it from demand erosion.

3. Low Exposure: Geographically Focused Brands

• Fiat (FCA): Minimal U.S. exposure (primarily trucks), though its parent Stellantis's U.S. ties complicate its standalone valuation.
• Peugeot (UG): Focused on European and Asian markets, it's less directly impacted but faces supply-chain risks via shared parts.

Investment Playbook: Capitalize on Asymmetric Risks

Scenario 1: A Deal is Struck (Most Likely)

If tariffs stay at 10%, high-exposure stocks like STLA and VOW could rebound sharply. Investors might consider:
- Long Positions: Buy dips in STLA and VOW ahead of the July 9 deadline. Both stocks have underperformed the broader market amid tariff fears.
- Spread Betting: Use options to profit from volatility. A call option on STLA with a strike price near current levels could amplify gains if a deal lifts its stock.

Scenario 2: No Deal (Tail Risk)

A 50% tariff would crush high-exposure names. Investors could:
- Short STLA and RNO: Capitalize on their downside.
- Hedge with U.S. Steel (XLE): A 50% EU steel tariff might boost domestic U.S. producers.

The Middle Ground: Sector Rotation

• Rotate into Low-Exposure Names: DAIA and BMW offer safer bets with premium pricing power.
• Focus on EVs: Automakers with strong EV pipelines (e.g., VOW's ID. series, STLA's Jeep EV) may outperform as demand shifts toward low-emission vehicles, which the EU has flagged as a priority.

Key Catalysts to Watch

• July 9 Deadline: A framework deal or failure will trigger immediate market reactions.
• Section 232 Legal Outcomes: A court ruling against tariffs could force renegotiations.
• EU Retaliation: If tariffs rise, the EU's €95 billion countermeasures targeting Boeing and bourbon could pressure U.S. companies, indirectly benefiting European exporters.

Conclusion: Time to Position for Turbulence—or Truce

The EU-U.S. trade standoff is a high-stakes game of chicken. Investors must distinguish between companies vulnerable to tariff shocks and those poised to capitalize on resolution. While high-exposure names like STLA and VOW offer leverage to a positive outcome, safer bets on diversified luxury brands or EV leaders provide downside protection.

The clock is ticking—position for the deal, but hedge for the fallout.

Data sources: U.S. Federal Reserve, EU Trade Commission, Bloomberg Equity Analysis (2025).