U.S. car tariffs could provide ’clearing event’ for troubled European auto stocks

Investing.com -- Citi analysts believe the announcement of 25% U.S. auto import tariffs—at the higher end of expectations—could serve as a "clearing event" for European auto stocks, despite the likely initial negative reaction.

According to Citi, tariffs have been a reason “not to buy” European auto stocks for at least six months, with hedge funds pre-positioned short and long-only investors maintaining underweight exposure. 

However, the bank suggests that this positioning could provide resilience against earnings downgrades if the tariffs remain in place.

"We believe STLA, P911, BMW (ETR:BMWG), MBG, and VW are most exposed, in that order, with RNO facing no risk," Citi said. 

While the sector is expected to react negatively to the news, the potential for short squeezes in Stellantis (NYSE:STLA) and Porsche could limit further downside, according to Citi. 

More significantly, Citi noted that if the broader EU cyclical trade remains intact, auto stocks could recover after the initial reaction.

Citi analysts remain positive on Volkswagen (ETR:VOWG_p) and Renault (EPA:RENA) in this scenario and see Porsche as a buying opportunity, assuming the stock is already heavily shorted.

Investor sentiment around Porsche depends on time horizons, said Citi. Short-term investors are said to be avoiding P911 due to tariff risks and concerns over execution, while longer-term investors view the current share price as an attractive entry point into a strong auto brand.

Ultimately, Citi suggests that the market’s reaction to the tariffs could present an inflection point, shifting sentiment toward European auto stocks if broader EU recovery trends hold.

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