The decision by former U.S. President Donald Trump to postpone the imposition of a 50% tariff on goods from the European Union until July 9, 2025, has placed auto stocks, particularly Tata Motors, and related auto ancillary companies, in the spotlight. This delay provides a critical window for automakers to evaluate strategies and adjust to the evolving trade landscape between the U.S. and the EU.
The postponement came after discussions between Trump and European Commission President Ursula von der Leyen, who expressed a desire to engage in serious negotiations. Trump, who had previously threatened the tariffs due to his perception that the EU was being "difficult" in trade negotiations, agreed to the extension. The decision has been welcomed by global markets, signaling a potential de-escalation in trade tensions.
The EU and the U.S. share a substantial trade relationship. In 2024, U.S. imports from the EU were valued at $605.8 billion, marking a 5.1% increase from 2023. However, U.S. exports to the EU amounted to $370.2 billion, resulting in a trade deficit of $235.6 billion, a 12.9% increase compared to the previous year. The potential 50% tariff threatened by Trump could have affected $321 billion in U.S.-EU trade, potentially reducing U.S. GDP by about 0.6% and increasing consumer prices by over 0.3%, according to Bloomberg Economics.
For Tata Motors, this delay offers a reprieve from immediate concerns. Tata Motors is a global automotive manufacturer with a significant presence in both passenger and commercial vehicle segments. It has operations in India, the UK, South Korea, South Africa, China, Brazil, Austria, and Slovakia through its subsidiaries, associate companies, and joint ventures, including Jaguar Land Rover (JLR) in the UK and Tata Daewoo in South Korea.
The company's financial performance has been robust. Tata Motors has demonstrated good profit growth, with a reported 75.90% increase over the past three years. Revenue growth has also been strong, at 34.43% over the same period. The company has also reduced its debt and has a good return on equity (ROE) track record with a 3-year ROE of 27.7%.
From a technical analysis perspective, Tata Motors has been trading in a price range of ₹715.00 to ₹722.05. While the stock has given -2.96% return this year and -1.70% in the last 5 days, analysts have mixed ratings on the stock. According to one source, 3 analysts have given it a sell rating, while others have a more positive outlook. The average share price target for Tata Motors Ltd. is ₹946.38, representing a potential upside of 31.76% from its last price.
The delay in tariffs allows Tata Motors to strategically plan its operations, especially concerning Jaguar Land Rover, which contributes significantly to the group's revenue. It also gives the company time to assess its supply chain and manufacturing footprint to mitigate potential impacts from future trade policies.
The broader implications of this tariff delay extend to the automotive industry as a whole. The EU imposes a 10% tariff on car imports from the U.S., while the U.S. imposes a 2.5% tariff on cars from the EU. Trump has argued that these terms of trade are unequal, leading to threats of increased tariffs on European automotive imports. While the EU has proposed a "zero-for-zero tariffs for industrial goods" approach, these offers have been previously rejected.
The coming weeks will be critical as the U.S. and EU engage in trade negotiations. The outcome of these discussions will significantly influence the strategies and future prospects of automotive companies like Tata Motors with global operations.
