The previous day, automobile sector stocks rebounded across the board on expectations of tariff relief following a U.S. federal court ruling that invalidated Trump-era reciprocal tariffs.
However, Kim Guyun, a researcher at Daishin Securities, cautioned that it is too early to be optimistic. He noted, "The Trump administration immediately announced its intention to appeal, and tariffs on individual items remain in effect. Since there is a possibility that uncertainties will persist until a final ruling is made, the prerequisites for a sustained upward trend in the automobile sector have not yet been met."
To secure earnings visibility for the third quarter, Kim emphasized that negotiations between automakers and parts suppliers will be key. As of March, before automobile tariffs were imposed, Hyundai and Kia's U.S. inventory stood at 3.2 months and 2.8 months, respectively, meaning the impact of tariffs on second-quarter consolidated results was limited. However, if tariff rates remain unchanged, the third quarter's results are expected to be significantly affected.
Kim explained, "A growing concern is the allocation of costs resulting from tariffs on raw materials and core parts for parts suppliers. While it is common for parts suppliers' tariffs to be passed on to automakers, parts suppliers are currently bearing the immediate costs. Therefore, negotiations are necessary to ensure actual cost recovery."
He also pointed out that the possibility of increased uncertainty in the industry due to tariff effects cannot be ruled out. Kim said, "U.S. automobile sales in April increased by 5.2% year-on-year. We believe this was driven by front-loaded demand amid expectations of price hikes due to tariffs, which could act as a base burden factor in the second quarter."
Exchange rate pressures, specifically the won-dollar rate, are another obstacle to a rally in the automobile sector. Kim analyzed, "In May, the won-dollar exchange rate was at 1,400 won, which is still high compared to the 2024 average of 1,363 won. With uncertainties in tariffs and fiscal policy, concerns about increased downside volatility have grown. Therefore, it is possible that earnings pressure on the automobile sector, a representative export industry, will intensify."
Given these factors, Kim recommended adopting different investment strategies depending on whether tariffs are in place or not. He said, "If tariff concerns persist, we recommend focusing on companies with strong robotics momentum. If tariff concerns ease, we recommend focusing on large-cap stocks with shareholder return and dividend momentum."
Meanwhile, on May 28 (local time), the U.S. Court of International Trade sided with the plaintiffs?five U.S.-based companies and 12 states including Oregon?who filed a lawsuit against the Trump administration, seeking to block 10-25% tariffs imposed on China, Canada, and Mexico, as well as planned reciprocal tariffs on major trading partners.
However, on May 29 (local time), the U.S. Federal Court of Appeals decided to temporarily reinstate former President Donald Trump's reciprocal tariff measures during the appeal process, further intensifying the controversy and uncertainty surrounding the "Trump tariffs."
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