WSJ What’s News - What’s News in Earnings: How Car Companies Are Prepping for Tariffs

Episode Date: May 7, 2025

Bonus Episode for May 7. Big automakers are bracing for tariffs. General Motors, Ford, Stellantis and Tesla say they’re strategizing to address possible price increases and supply-chain disruptions. Automotive regulatory reporter Ryan Felton analyzes the latest earnings results from car companies to explain what they’re doing and what it could mean for customers. Julia Carpenter hosts this special bonus episode of What's News in Earnings, where we dig into companies’ earnings reports and analyst calls to find out what’s going on under the hood of the American economy. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey listeners, it's Wednesday, May 7th. I'm Julia Carpenter for the Wall Street Journal. And this is What's News in Earnings, our look at some of the big themes standing out this earnings season. Today, we're talking about automakers. It certainly hasn't been a quiet few months for big automotive companies like Ford, Stellantis, General Motors, and Tesla. They've been the target of Trump administration tariffs and the back and forth with the White House has dominated the news cycle. So how are the companies responding and what will it mean for customers? Ryan Felton covers automotive regulatory issues and the car company Stellantis for the Wall Street Journal

and he's here to explain all that's happening across the sector. Ryan, good to see you. Thanks so much for having me on. We've now seen earning reports from big automakers like Ford, Tesla, General Motors, Stellantis, all four pension tariffs. Can you tell me more about how executives addressed

this concern and talked about what it means for the future? Hedging is probably the best way to put it. The major automakers pulled back on their forecast for the rest of the year, projecting a lot of additional costs in the billions of dollars to compensate for the tariffs, and then just trying to start figuring out how to get production set up in a way to minimize the tariff liability, which I think at this point has definitely been described as a bit of a challenge because things are continuing to evolve

at the administration and how they're trying to set this up as well, including as recently as within the past week. General Motors said they're expecting $4 billion to $5 billion in tariff costs this year, and that could cut net profit by as much as a quarter. Those are giant numbers. What is GM planning to do about them?

Yeah, the main things that they put out were cutting spending for one part and then increasing production where they can. There's been a lot of talk in recent days in particular from the United Auto Workers, which has a big representation at GM about how much extra capacity these American automakers already have to boost production. There's some, it's a very simplified way of explaining that extra capacity. But with all that said, GM did say this week that's planning to build more profitable pickup trucks at a factory in Indiana

and start trying to make more electric vehicles, batteries in the US, and then just trim costs wherever else it can. And Stellantis, which I know you cover, is of course in the midst of this big transition period. They're still looking for a new CEO. Their CEO left late last year. What did the executives share about plans there?

Yeah, so they're still planning to name their CEO at some point before the end of the first half. They say they're on track for that. But they too are in a difficult position because they make a lot of their profitable bigger pickup trucks for the market in Mexico. So they have to start thinking about making some changes as to where some of their more popular,

more profitable products are made and finding ways to trim costs on those in particular. And at the same time, they have said that they're planning to reopen a factory in Illinois, which it's not something that you can just do overnight. have said that they're planning to reopen a factory in Illinois, which it's not something that you can just do overnight. I'm thinking about everything you've just described with Stellantis. A lot of these challenges seem to have broader implications.

The way that I always think about cars in the broadest sense is it's the second biggest thing that most people buy. People in bigger cities may not need a car, but 80, 90% of the public does. It really complicates things for a lot of consumers downstream. And that partially explains, I think, why you saw sales spike the way that they did the past couple of months. There was some effort by companies to offer promotions and the like to kind of reel people in before this essentially necessary

item, a car, gets even more expensive. Tesla have reported pretty weak results. Some of the weakest posted in years. 71% drop in net income during its most recent quarter. And of course, Elon Musk has been spending more time at the White House. What's happening with Tesla? How is this impacting the company and what is it saying it's going to do next? That's the most standout item from their call is that Elon says he's going to be devoting

more time to the company. But at the same time, they still are preparing to launch a new updated version of the Model Y SUV, which is their top selling vehicle. So that was partially what they said was to explain for the sales drop off. But still at the same time, a lot of people are starting to come around to the idea that they've basically had the same models for years now and that maybe is starting to impact consumer appetite for it. But that said, Tesla told told investors that it's planning to introduce what they're calling more affordable models, which has been a bit of a mystery. What exactly that is.

It could be a brand new car, possibly what it was long hoped for, but now the expectation is that it'll be an even more stripped down version of the Model Y and Model 3. Ryan, I wanted to ask you about the possibility of supply chain disruption. Ford mentioned it on their earnings call. It's a big concern for a lot of consumers, a concern for investors. Are we seeing it happen now or is this still a concern for the future? Thinking about how the semiconductor crisis kind of played out, it was something that was percolating for a while and then it just blew up.

What we've been seeing and talking with folks in the industry here is there has been a lot of back and forth for the better part of two months now between companies over who's paying what on the tariff. Are you paying everything? Am I paying everything? Are we splitting it? And if those discussions break down, that's where you can start to have hiccups in supply chain challenges. One supplier, this isn't just hyperbole, it's

been proven over time, one supplier can really wreak havoc on the entire industry. There's a lot of really specialized components and only so many companies that make them. And so if one goes down, it can immediately become a challenge. Last question for you, Brian. Looking ahead, can we expect to see the tariffs passed on to consumers? And what have companies had to say about that and what they're going to do about it?

So far, the way that companies have said they're going to handle this is we're not going to raise prices for now. That's because most companies have, roughly speaking, two months worth of unsold new cars on dealer lots. So that kind of gives you a bit of a runway to start figuring out contingencies. And there's reason to think things could play out where consumers may not see a significant jump.

This change, for example, to the auto parts tariff that the Trump administration introduced last week, it made the tariff on a lot of auto parts within this North American region exempt from the tariffs, at least for now. So if that stays in place and a lot of these parts continue to be exempt, I think it's possible you could see the damage limited. But that said, thinking of a company like Subaru, for example, or Volvo is another good example, Volvo's earnings were pretty bleak. Customers who like very import heavy car makers may be the ones who see the issues first because unlike a company such as Ford

or GM, they have less levers to pull to really figure out how to maneuver this. And that was What's News and Earnings. Today's show was produced by Charlie Duffield and Pierre Bienamé with deputy editor Chris Sinzley. Later today, we'll have the PM edition of What's News out for you as usual, and we'll be back later this earnings season diving into another industry. Until then, I'm Julia Carpenter. Have a great day!