Tariffs an 'existential threat' for Canada's auto parts makers, CIBC warns
Canadian automotive parts manufacturers face an 'existential threat' from U.S. tariffs, say analysts at CIBC Capital Markets downgrading shares of Linamar (LNR.TO) and Martinrea International (MRE.TO) on Wednesday while slashing price targets.
Auto parts are particularly vulnerable to tariffs since they cross the Canada-U.S. border multiple times before incorporation in finished cars and trucks. On Tuesday, U.S. President Donald Trump imposed a 25 per cent tariff on imported Canadian goods, with a 10 per cent levy on energy products, prompting Canadian officials to respond with counter measures.
'Prior to any tariff talk, we had viewed 2025 as a 'run-of-the-mill' challenging year,' CIBC Capital Markets analyst Krista Friesen wrote in a note to clients.
'We view these tariffs as an existential threat to the industry.'
Prior to Tuesday, Friesen says she expected the Trump administration to create a carve-out for the auto industry, or delay tariffs.
'In a worst-case scenario, these tariffs are long-lived and are compounded by the tariffs introduced by Canada,' she wrote. 'We would also note that our current understanding is the U.S. tariffs have no duty drawback ability, meaning each time a vehicle crosses to the U.S., the tariffs are compounded.'
Friesen downgraded her rating on Linamar and Martinrea shares to 'neutral' from 'outperform.' She cut her price target on Toronto-listed Linamar stock by 33 per cent, from $82 to $55. Friesen also lowered her price target on Martinrea shares by 36 per cent, from $14 to $9.
'Even if these current tariffs are short-lived, we suspect the risk of tariffs will be an overhang on the sector through the Trump presidency,' she wrote. 'Given the range of outcomes, it is challenging to estimate what the impact would be to the suppliers' earnings.'
Linamar reports fourth-quarter 2024 financial results after the closing bell on Wednesday.
'Because the tariffs imposed by the U.S. include auto parts, we are likely to see our customers slow or cease production in the near term,' Linamar executive chair Linda Hasenfratz wrote in a Feb. 3 letter to shareholders.
Martinrea is scheduled to report financial results for the three months ended Dec. 31 after markets close on Thursday.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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