By Jules Rimmer
U.S.-Japan trade deal inspires gains in Europe
The threat of an all-out trade war between the U.S. and the E.U. has put European auto stocks in reverse throughout 2025.
At the close of business on Tuesday, the Stoxx Europe 600 Autos index XX:SXAP was still down more than 5% for the year compared to the overall Stoxx Europe 600 XX:SXXP benchmark’s 7% return.
Now though, after Japan reached a compromise 15% tariff deal with the U.S. that crucially includes autos, European auto stocks have suddenly accelerated with the sub-index enjoying its third-best day of 2025 so far, surging 3.4% in early Wednesday trading. European autos took their cue from Toyota Motor (JP:7203), which enjoyed its biggest one-day leap since the heady days of the Japanese bull market of 1987.
Investors will be watching closely for developments in the delicate negotiations between the U.S. and the E.U., which are taking place in Washington D.C. today. They are hoping for a compromise agreement to be reached which would avoid the imposition of the blanket 30% tariffs that President Trump threatened on August 1.
Traders may be enjoying Wednesday’s relief rally, but the problems besetting the European auto industry go beyond mere current tariff concerns. As last week’s profit warning from Renault (FR:RNO) confirmed, the sector has been struggling to deal with a variety of factors. These range from a stronger euro that has made exports more costly, to increased competition from the Chinese manufacturers like Xiaomi (HK:1810) and BYD (CN:002594). This comes a time when European autos have been forced to make huge investments in electric vehicles and adoption of the latter by car-buyers has been slower than hoped.
Sales of new cars in the European market rose just 0.1% in the first five months of this year, according to market intelligence and consulting firm Focus2Move.com.
It’s no surprise then that in the last three years, the auto sector has only managed to deliver 16% returns to shareholders, whereas the Stoxx Europe 600 has generated 41%.
The challenges facing the industry are reflected in the discounted valuations investors ascribe to the sector. While Eurostoxx 600 trades on a multiple of 15 times price-to-earnings, the autos sector trades at 10 times only. Even this is significantly skewed by the huge premium commanded by Ferrari’s (IT:RACE) 48 times price-to-earnings ratio, and its outsize 26% weighting in the index that results from it being treated more like a luxury goods company than an auto manufacturer.
Ferrari shareholders may feel its premium product and less price-sensitive buyers make it less vulnerable to tariff increases. Its stock fell 1.29% in Wednesday trading.
The biggest jumps were recorded by Volkswagen (XE:VOW), BMW (XE:BMW) and Mercedes (XE:MBG).
-Jules Rimmer
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