A worker prepares components of electric vehicle battery trays for welding at Magna's Heart Lake production facility in Brampton, Ont., in August, 2023.Christopher Katsarov/The Globe and Mail
U.S. President Donald Trump’s plan to slap tariffs on imports from Canada and Mexico next month will disrupt the automotive industry and impose unaffordable costs on parts suppliers, the top executive of Magna International Inc. MG-T warns.
Swamy Kotagiri, chief executive officer of Magna, said the auto-parts maker has been in talks with customers about the proposed 25-per-cent tariffs since December, and has heard some are discussing shifting production to avoid the levies. Magna is prepared to work with the carmakers to look at moving production, he said, but the company is unable to eat the cost of the tariffs.
“I can tell you one thing, for a supplier to absorb this magnitude that they’re talking about is really unrealistic and untenable,” Mr. Kotagiri said on a conference call with analysts on Friday.
Magna, based in Aurora, Ont., makes a wide range of auto parts for Detroit’s Big Three automakers – General Motors, Ford and Stellantis – as well as other carmakers at factories in Canada, the U.S., Mexico and overseas. Mr. Kotagiri said players in the highly integrated auto industry cannot simply move factories or production to avoid tariffs.
“We’re looking at that and we’ll continue to look at that. But all said and done, you know the industry well enough, this is not a switch that can be turned on and off in the short term, so I believe this is going to be disruptive,” he said, when asked about Magna’s flexibility to move production to the U.S. to mitigate tariffs. “We’re going to see a lot of starts and stops, moving up and down volumes and where which assembly plant does go.”
If the tariffs are in place for a year, Magna’s estimated 2025 earnings before interest and taxes could be reduced by 20 per cent, said Tamy Chen, a stock analyst at Bank of Montreal.
In a recent research note, Ms. Chen said the tariffs would drive down North American auto production volumes, reduce demand and raise the risk that some parts suppliers – including Magna – might have to absorb a portion of the tariffs. “The latter risk is important as it represents the much larger earnings hit,” Ms. Chen wrote, adding Magna’s balance sheet is not at risk owing to its ample liquidity.
Magna’s share price on the Toronto Stock Exchange fell by about 5 per cent on Friday after the company reported financial results and an outlook that did not account for possible tariffs.
Magna’s fourth-quarter revenue rose by 2 per cent to US$10.6-billion, from the year-earlier period. Profit fell by 25 per cent to US$203-million, or 71 cents a share, amid a drop in in-house and customer vehicle production and unfavourable currency rates.
For the full year of 2024, revenue was flat at US$42.8-billion and profit slipped by 17 per cent to US$1-billion.
For 2025, Magna forecast revenue of between US$38.6-billion and US$40.2-billion. In 2026, Magna expects sales will rebound to as much as US$42.6-billion.
Mr. Trump says U.S. importers of Canadian and Mexican goods will be charged a 25-per-cent tariff as early as March. Energy products will be subject to 10-per-cent tariffs. He also will impose 25-per-cent tariffs on imported steel and aluminum on March 12, part of what he says is a bid to balance trade and create U.S. jobs.
The tariffs run contrary to the North American free-trade agreement renegotiated in Mr. Trump’s first term, and would upend decades of levy-free commerce in the automotive sector. The North American industry is deeply integrated, and unwinding this interdependence would be expensive and take years.
Mr. Trump has repeatedly threatened to make Canada the 51st state, and said he will use “economic force” of tariffs to do so.
“Canada is going to be a very interesting situation because we just don’t need their product,” Mr. Trump said on Thursday.
Experts warn the tariffs will be paid by U.S. companies and consumers, and will lead to inflation and job losses.
James Farley, Ford Motor’s chief executive officer, warned this week the tariffs will “blow a hole” in the U.S. industry, causing “cost and chaos” while handing an advantage to overseas carmakers.
Canada plans to impose retaliatory tariffs on everything from U.S.-made toilets to meat and whisky.