If US-Canada auto tariffs fall to 15%, Stellantis and GM would benefit most, but global auto conditions remain highly divergent

Overview

This global auto monitoring report focuses on developments in US-Canada auto tariffs while also updating global production forecasts, second-quarter supplier performance, margin and order trends in China, and views on major regions and companies. The report believes tariff reductions could provide incremental benefits to certain North American automakers, but the industry continues to show clear divergence across regions, companies, and segments of the value chain.

Core views

The report first analyzes the impact of changes in US-Canada auto tariffs on the Detroit Three. Media reports indicate that the US may reduce import tariffs on Canadian-produced vehicles from 25% to 15%; if confirmed, Morgan Stanley would view this as an incremental positive for all three automakers. Stellantis has Canadian vehicle exposure equivalent to approximately 10%-11% of its US light-vehicle sales and is therefore considered the largest beneficiary; GM's corresponding exposure is approximately 2%, making it the second-largest beneficiary; after discontinuing the Corsair and Escape, Ford's Canadian vehicle assembly exposure is close to zero, and combined with its limited import exposure, the direct impact would be relatively small. The report emphasizes that this development could also provide a reference point for subsequent tariff negotiations with Mexico, making the direction of Mexican import tariffs a key condition in determining whether the scope of the impact can broaden. For Japanese automakers, Honda and Toyota would also benefit if the tariff rate on Canadian-produced vehicles is indeed reduced. On suppliers, second-quarter results were generally solid, with performance broadly exceeding expectations, and most companies also offered relatively constructive outlooks for 2026. However, the research focus has shifted from second-quarter results to second-half execution: guidance from several companies implies a meaningful acceleration in the fourth quarter, indicating that full-year targets depend heavily on delivery later in the year. The main execution variables identified in the report include China demand and the mix of business exposure, new product launches, production shutdowns, and the ability to recover input costs such as raw materials from customers. Japanese automakers' sales in China further reinforce these concerns: in July 2026, Toyota's new-vehicle sales in China fell 24% year over year, Honda's fell 44%, and Nissan's fell 59%. The report views the implications for parts suppliers as negative; if suppliers cannot offset China market pressure through sales growth in other regions, a weaker yen, or other factors, market concerns about cuts to full-year guidance may persist. Global production forecasts were adjusted slightly, but the low-growth trajectory remains unchanged. The forecast now calls for global auto production of 91.3 million units in 2026, up from 91.1 million units last month, primarily due to an upward revision to Europe, but still down 1.9% year over year. The 2027 forecast was trimmed slightly from 91.8 million units to 91.7 million units, representing 0.4% growth year over year. These revisions indicate that recent improvement in Europe provides limited support for 2026, but the global production trajectory underpinning the report remains close to flat, with only a modest recovery in 2027. Second-quarter results in China's auto sector show that, despite price cuts and input-cost pressures, margins at companies that have reported generally remained stable or improved, while foreign exchange, taxes, and other non-operating items added noise to results. Consequently, the market debate has shifted from pure volume risk to third-quarter margin risk and may shift further toward policy risk in the fourth quarter. Electric vehicle orders from August 10 to 16 remained divergent: after typhoon disruptions ended, order improvements broadened among some mass-market brands, while most leading premium EV brands saw orders retreat following short-term peaks driven by new product launches. At the company level, the report believes WeRide's share-price reaction year to date already reflects pressure from policy, geopolitics, and more aggressive artificial intelligence R&D investment, but underestimates its ability to broaden its business scope domestically and internationally and rapidly adjust its strategy; its path is summarized as targeting L4 autonomous driving while using L2++ as the means to achieve scale. Geely is expected to benefit in the second half from a stronger premium and overseas sales mix and new vehicle launches. The report highlights its risk-reward profile at 7 times 2026 expected earnings and views margin resilience and export upside as catalysts for earnings and valuation rerating. Hesai is described as using cash generated by its core lidar business to support strategic growth initiatives such as spatial intelligence and embodied artificial intelligence, thereby expanding into physical artificial intelligence and pursuing its next phase of growth. At the regional and stock-selection level, Morgan Stanley's global top picks are General Motors, Carvana, Mercedes-Benz Group AG, Daimler Truck Holding AG, and Suzuki Motor. In terms of industry views, the Indian auto industry is rated Attractive, while North America, Europe, China, Japan, and South Korea are all rated In-Line, reflecting a structurally more positive view on India and a broadly neutral stance toward other major regions. The report also covers adjacent themes: artificial intelligence is expanding LG-related investment opportunities beyond televisions, smartphones, and display panels, with the research favoring LGE and LGI, while its Equal-weight view on LGD primarily depends on OLED execution; major South Korean conglomerates have also begun setting more specific production targets for robots and humanoid robots and are gradually moving into the execution phase.

Analysis framework

The report uses a weekly monitoring framework: it first compares potential beneficiaries based on tariff events and each automaker's Canadian production capacity and import exposure, then assesses the industry's aggregate trend through monthly revisions to global light-vehicle production forecasts; it subsequently evaluates second-half execution risks by combining suppliers' quarterly results and full-year guidance with China sales and orders and margin changes. Company views incorporate business mix, regional sales mix, growth pathways, and relative valuation, with cross-sectional comparisons using comparable-company tables for global OEMs, suppliers, and dealers.

Methodology notes

• Event Trading and Behavioral FinanceEvent-driven analysis

  Tariff Events and Corporate Exposure Analysis

  The report uses the potential reduction in US-Canada auto tariffs from 25% to 15% as the triggering event, then compares Stellantis', GM's, and Ford's Canadian vehicle and import exposure to assess the relative impact on each company.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Global Light-Vehicle Production Forecast Tracking

  The report compares this month's and last month's global production forecasts for 2026 and 2027 and combines year-over-year growth rates with the regional sources of revisions to assess overall industry conditions and the pace of recovery.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Transmission of Automaker Sales to Auto Parts Supplier Performance

  The report links Japanese automakers' sales declines in China to supplier revenue, full-year guidance, and earnings risks, while also assessing whether growth in other regions, foreign exchange, and cost recovery can provide offsets.

• Valuation MethodPE/PEG valuation

  Forward P/E Valuation

  The report assesses Geely's current risk-reward at 7 times 2026 expected earnings and treats sales mix, margins, and export performance as potential rerating factors.

• Valuation MethodEV/EBITDA valuation

  Global Auto Comparable-Company EV/EBITDA Comparison

  The global OEM and supplier comparison tables use enterprise value-to-EBITDA multiples for relative valuation; except for specific methodologies such as Ford's, the report generally excludes the impact of pension and healthcare liabilities, while North American coverage uses an EV/EBITDAP methodology that includes the relevant liabilities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Stellantis（STLA.N、STLAM.MI）

  If US-Canada auto tariffs fall to 15%, the report considers it the largest beneficiary among the Detroit Three.

  Strengths

  Canadian vehicle production is equivalent to approximately 10%-11% of its US light-vehicle sales, making it the most sensitive to tariff reductions.

  Weaknesses

  The report does not identify company-specific weaknesses independent of tariff exposure.

  Comparison

  The potential benefit is greater than for GM, whose Canadian exposure is approximately 2%, and Ford, whose exposure is close to zero.

  Risks

  The positive impact is conditional on the media reports ultimately being confirmed and the tariff policy actually being implemented.

• General Motors（GM.N）

  It is identified as the second-largest potential beneficiary of the tariff change and is also one of the report's global top picks.

  Strengths

  Canadian vehicle exposure is approximately 2% of US light-vehicle sales, and the company is included on the global top-picks list.

  Weaknesses

  Its sensitivity to Canadian tariff reductions is lower than Stellantis'.

  Comparison

  The potential benefit is lower than for Stellantis but higher than for Ford, where the direct impact is limited.

  Risks

  The final impact depends on implementation of US-Canada policy and subsequent tariff negotiations with Mexico.

• Ford Motor Company（F.N）

  The report believes tariff developments will have a limited direct impact on the company.

  Strengths

  Import exposure is limited, and Canadian vehicle assembly exposure is close to zero following the discontinuation of the Corsair and Escape.

  Weaknesses

  Because its relevant exposure is low, the direct incremental benefit from lower Canadian tariffs would also be small.

  Comparison

  The expected benefit is lower than for Stellantis and GM.

• Honda Motor（7267.T）and Toyota Motor（7203.T）

  If reports that import tariffs on Canadian-produced vehicles will fall from 25% to 15% are confirmed, both companies could benefit.

  Strengths

  Canadian-produced vehicles could qualify for a lower US import tariff rate.

  Weaknesses

  In July 2026, their new-vehicle sales in China fell 44% and 24% year over year, respectively.

  Comparison

  During the same period, Nissan's sales in China fell 59% year over year, a larger decline than Honda's and Toyota's.

  Risks

  Weak China demand and uncertainty surrounding the tariff path for Mexican imports.

• Japanese Auto Parts Suppliers

  Declining China sales by Japanese automakers have negative implications for supplier revenue and full-year guidance.

  Strengths

  Sales growth in other regions, a weaker yen, or other factors could provide partial offsets.

  Weaknesses

  They face transmission pressure from declining China demand and customer sales.

  Comparison

  Suppliers' ability to offset China risks through regional mix and foreign exchange factors will determine performance differences among companies.

  Risks

  If offsetting measures are insufficient, market concerns about cuts to full-year guidance may persist.

• WeRide Inc

  The report believes the market underestimates its ability to broaden its domestic and international business scope and pivot its strategy rapidly.

  Strengths

  It targets L4 as its long-term objective and uses L2++ as a means of scaling the business.

  Weaknesses

  More aggressive artificial intelligence R&D investment increases near-term pressure.

  Risks

  Policy and geopolitical headwinds, as well as pressure from artificial intelligence R&D spending.

• Geely Automobile Holdings

  The report believes second-half sales, product-mix improvements, and export growth could provide catalysts for earnings and valuation rerating.

  Strengths

  A stronger premium and overseas sales mix, new vehicle launches, margin resilience, and a valuation of 7x 2026E P/E.

• Hesai Group

  Cash generated by the core lidar business is being used to support new growth initiatives such as spatial intelligence and embodied artificial intelligence.

  Strengths

  The lidar business is viewed as a cash cow that can fund expansion into physical artificial intelligence.

• Carvana、Mercedes-Benz Group AG、Daimler Truck Holding AG、Suzuki Motor

  Together with General Motors, they are listed as Morgan Stanley's global top picks across major regions.

  Strengths

  The report explicitly includes them on its global top-picks list.

Key data

• Potential US-Canada Auto Tariff Rate15%Media reports indicate that the US may reduce import tariffs on Canadian-produced vehicles from 25% to 15%; the conclusion is conditional on the reports ultimately being confirmed.
• Stellantis Canadian Vehicle Exposure10%-11% of US light-vehicle salesThe highest among the Detroit Three, so the report considers it the largest potential beneficiary.
• GM Canadian Vehicle ExposureApproximately 2%The potential benefit is lower than for Stellantis but higher than for Ford.
• Ford Canadian Vehicle Assembly ExposureClose to zeroExposure declined significantly after the discontinuation of the Corsair and Escape, limiting the direct impact of tariff changes.
• 2026 Global Auto Production Forecast91.3 million unitsLast month's forecast was 91.1 million units; production is still expected to decline 1.9% year over year, with the upward revision primarily driven by Europe.
• 2027 Global Auto Production Forecast91.7 million unitsLast month's forecast was 91.8 million units; production is now expected to increase 0.4% year over year.
• Toyota July 2026 New-Vehicle Sales in ChinaDown 24% year over yearWeak sales by Japanese automakers in China have negative implications for related auto parts suppliers.
• Honda July 2026 New-Vehicle Sales in ChinaDown 44% year over yearA larger decline than Toyota's.
• Nissan July 2026 New-Vehicle Sales in ChinaDown 59% year over yearThe largest decline among the three listed Japanese automakers.
• Geely Valuation7x 2026E P/EThe report discusses its risk-reward in conjunction with second-half sales, product mix, margin resilience, and export potential.

Impact & implications

The report believes the benefits of tariff reductions will not be distributed evenly among automakers but will depend primarily on Canadian production and import exposure, with Stellantis and GM significantly more sensitive than Ford. At the industry level, although the 2026 forecast was revised slightly upward, production is still expected to decline year over year, while 2027 is expected to deliver only modest growth; therefore, company-level product mix, regional exposure, margins, and execution capabilities are more important than relying solely on industry volume expansion. For suppliers, weak China demand and a concentrated fourth-quarter ramp-up could make full-year guidance more difficult to achieve, while Chinese automakers are entering a phase in which risks are shifting from sales volumes toward margins and policy.

Risks

• The benefits of US-Canada auto tariffs are conditional on the media reports being accurate and the policy ultimately being implemented, while subsequent tariff negotiations with Mexico remain uncertain.
• Guidance from some suppliers implies a significant ramp-up in the fourth quarter of 2026, increasing the risk that full-year targets may not be achieved on schedule.
• Suppliers face risks related to China demand and exposure mix, new product launches, production shutdowns, and input-cost recovery.
• Japanese automakers' sales in China have declined significantly; if growth in other regions, foreign exchange, or other factors cannot provide an offset, parts companies may cut full-year guidance.
• The central debate surrounding China's auto industry may shift from third-quarter margin risk toward fourth-quarter policy risk.
• WeRide faces pressure from policy, geopolitics, and elevated artificial intelligence R&D investment.

What to watch

• Monitor whether US-Canada auto tariffs are formally reduced to 15% and the specific scope of the policy.
• Monitor the subsequent trajectory of negotiations over import tariffs on Mexican-produced vehicles.
• Monitor suppliers' second-half execution, particularly fourth-quarter production ramp-ups, program launches, shutdowns, and cost recovery.
• Monitor whether Japanese automakers' China sales continue to weaken and whether suppliers can offset the impact through growth in other regions and foreign exchange factors.
• Monitor Chinese automakers' third-quarter margins and fourth-quarter policy changes.
• Monitor whether improvements in mass-market EV orders can continue and the extent of order declines following new product launches by premium brands.