3 Automakers to Buy on U.S.-Japan Trade Deal—Not Who You Expect

Globe and Mail

11 hours ago

The United States and Japan reached a new trade agreement last week. While the announcement was light on details, the market-moving information included a 15% tariff rate on Japanese imports into the U.S. Japanese car manufacturers rallied swiftly on the news, as the 15% rate is far less punitive than the 27.5% rate that was scheduled to take effect on August 1.
A 15% tax is still the highest that companies importing from Japan have paid in many decades, but markets have seemingly priced out the worst-case scenario. One area of the market that didn't rally? The stocks of U.S. automakers, whose leaders haven't exactly praised the new agreement.
Today, we'll look at why the Big Three in Detroit could suffer under the current framework and discuss three Japanese car stocks that have surged since the announcement.
Why U.S. Manufacturers Hate the U.S.-Japan Trade Deal
Market indices popped on the news, but the deal wasn't exactly well-received by everyone in the U.S. The American Automotive Policy Council, which represents legacy American automakers like Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM), harshly rebuked the deal.
Spokesman Matt Blunt lived up to his namesake by commenting, 'Any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American-built vehicles with high U.S. content is a bad deal for U.S. industry'.
Big Three automakers with significant production in Canada and Mexico could face higher import levies on vehicles compared to similar Japanese models manufactured entirely in Japan.
Additionally, the 'opening' of the Japanese auto market to American cars is likely to be a disappointment, as narrow streets and consumer preferences for smaller, more efficient cars have limited the success of Big Three vehicles in Japan.
Japan is a right-side-driving nation, and American companies would need to build up supply chains to support right-side-driving vehicles. These factors have made it challenging for U.S. auto companies to establish a foothold in Japan, so Ford withdrew from the market in 2016.
3 Japanese Automakers Rising on New Trade Deal
U.S. automakers are unhappy, but their counterparts across the Pacific are enjoying a rally, with shares of some Japanese manufacturers jumping more than 10% last week. The new deal makes imports more expensive, but these three companies are best positioned to protect their bottom lines.
Honda Motors: Poor Earnings Present Buying Opportunity
Honda Motor Co., Ltd. (NYSE: HMC) is one of the few car manufacturers enjoying a strong start to 2025, with shares up nearly 16% year-to-date. Honda has most of its manufacturing facilities in the U.S. and Japan, which gives it a leg up on other carmakers facing higher tariffs routing parts and assembly through Canada or Mexico. Tariff relief is crucial for Honda, which lacks the margins of Toyota or Subaru to absorb hefty tariffs. During its Q4 earnings report in May, the company anticipated net profits of Japanese yen (JPY) 250 billion (approximately $1.6 billion) for the fiscal year ending March 2026, after factoring in tariff impacts, and reduced operating profit expectations by 59%.
However, this miss could be a buying opportunity now that tariffs have become more manageable and the stock trades above its 50-day and 200-day moving averages.
Subaru: Analyst Upgrade Points to Improving Business
One of the first things analysts at Goldman Sachs did following the trade deal announcement was to upgrade shares of Subaru Corp. (OTCMKTS: FUJHY) from a Neutral rating to a Buy recommendation. Subaru has been aggressive in its tariff mitigation strategy. It has already instituted 4-5% price raises on most models, banking on its strong brand recognition and customer loyalty to limit pushback.
Preparing for the worst has put Subaru in a favorable position, as it can now protect its margins without resorting to additional price hikes.
The company reports earnings again in early August, and now that tariffs have settled lower, investors will pay close attention to any guidance revisions.
Toyota: Relief Rally Ignites as the Worst Is Avoided
No one breathed a bigger sigh of (tariff) relief than the executives at Toyota Motor Corp. (NYSE: TM), who were staring down a significant margin blow as more than 2.4 million Toyotas were sold in the U.S. alone last year. Toyota has a substantial manufacturing presence throughout the U.S., Canada, and Mexico, which puts some models in the crosshairs of tariffs as low as 0% but as high as 25% (pending any new agreement with Canada or Mexico).
However, Toyota has avoided the worst-case scenario, and its stock rallied more than 10% last week after spending the first half of 2025 in the red. Toyota had been anticipating its operating income to drop to JPY 3.8 trillion ($25.5 billion) for the fiscal year ending March 2026, after paying tariffs totaling JPY 180 billion ($1.2 billion) in April and May of this year.
The firm's next earnings report is scheduled for July 30, and the tone is likely to be more upbeat, as the impact of tariffs has been mitigated and the company's EV division continues to grow sales at a clip exceeding 40%.
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