Investing.com - Recent underperformance in European automaker stocks could offer an opportunity in the medium term should U.S. tariffs on the industry decrease, according to analysts at Morgan Stanley.
Despite delaying elevated "reciprocal" levies on most countries for 90 days, the Trump administration has left tariffs of around 25% on some items, including autos and automotive parts, in place.
But President Donald Trump is planning to spare carmakers from some tariffs in the wake of heavy lobbying from industry executives, the Financial Times has reported, citing people familiar with the matter.
Against this backdrop, the Morgan Stanley analysts said in a note to clients that, should the easing of Trump’s trade agenda extend into the car industry, the current prices of European automakers are "an opportunity."
"The European auto sector has seen the largest underperformance in decades, both in absolute terms and relative to the market, cyclical and global auto peers. This is the kind of underperformance you want to look for in cyclical sectors and would be a clear entry point if auto tariffs were to disappear or reduce significantly," they wrote.
In this scenario, the sector would be "much more attractive", they argued, adding that they would prefer cyclically-exposed names like Jeep-owner Stellantis (NYSE:STLA) or German car giant Volkswagen (ETR:VOWG_p).
However, the analysts said it remained "prudent" to retain its "in-line" view of the European auto industry, keeping Mercedes Benz Group AG (ETR:MBGn) (OTC:MBGAF) as its top pick in the sector. They are also "overweight" BMW (ETR:BMWG), "equal-weight" on Renault (EPA:RENA) and "underweight" on Porsche (ETR:P911_p).
The comments come as White House officials have begun to signal some softening in their aggressive trading stance, particularly with respect to China.
Trump has said he wants to make a "fair deal" with China, who was omitted from his reciprocal tariff postponement. U.S. Treasury Secretary Scott Bessent has also suggested the duties of at least 145% on the world’s second-largest economy -- as well as retaliatory tariffs from Beijing of 125% -- are untenable.
China, meanwhile, is considering giving an exemption to some U.S. products to its steep retaliatory tariffs and is asking businesses to identify goods that could be eligible, according to Reuters.