Shares of Hertz (HTZ) and Avis Budget Group (CAR) surged on Thursday after US President Donald Trump announced a plan to impose a 25% tariff on imported vehicles.
The proposed levies are expected to increase car prices, potentially driving more consumers toward rental services instead of purchasing new vehicles.
Hertz shares jumped 23.8%, while Avis Budget climbed 23%, marking a significant recovery after both companies lost nearly half their value over the past year.
Analysts attribute the surge to growing expectations that rising vehicle costs could make rentals a more attractive option for consumers.
“These rental companies actually benefit from the tariffs because if car prices are going to go up, maybe some people who are like, ‘You know what? I don’t travel that much. I’ll just rent a car’,” said Dennis Dick, chief strategist at the Stock Trader Network.
The sudden rally was also fuelled by a short squeeze, as investors who had bet against Hertz and Avis scrambled to cover their positions.
According to LSEG data, 13% of Avis shares and 14.5% of Hertz shares were in short positions, making them particularly vulnerable to a rapid price spike.
Auto parts sector sees gains as consumers expected to hold onto vehicles
The impact of the tariffs is expected to extend beyond car rentals, with analysts predicting that more consumers will hold onto their existing vehicles for longer.
This shift could boost demand for auto parts and repair services, benefitting companies in the aftermarket industry.
Shares of leading auto parts retailers reflected this outlook, with O’Reilly Automotive and AutoZone each rising about 2.5%, while Advance Auto Parts saw a 5.4% gain.
Analysts at J.P. Morgan noted that both repair frequency and the scale of repairs could increase as consumers delay new car purchases.
Automakers to face financial pressure from tariff impact
While rental companies and parts suppliers benefited from the news, major automakers faced mounting concerns over the financial strain of the proposed tariffs.
Shares of Ford, General Motors, and Stellantis fell between 1.2% and 5.8% as investors assessed the broader implications.
According to Bernstein analysts, the 25% tariffs would add approximately $110 billion in costs to the automotive sector, translating to an estimated price increase of $6,700 per vehicle.
The financial hit could be severe, with Ford and GM expected to see earnings before interest and taxes drop by up to 30%.
Stellantis, which has a significant portion of its production based in the US and Mexico, may experience a comparatively smaller impact.
Tesla positioned to gain from shifting market dynamics
Among automakers, Tesla appears to be the least affected by the tariff plan.
Analysts highlighted that Tesla’s more localized production footprint gives it an advantage over competitors that rely heavily on imported parts and vehicles.
The financial impact of the tariffs is expected to materialize gradually, with existing inventories cushioning the effect in the second quarter.
However, analysts warn that by the third quarter, automakers could face mounting cost pressures as short-term mitigation strategies fade.
Without a significant shift in supply chains, manufacturers may see an additional 20% hit to their earnings by 2026.
As discussions over the proposed tariffs continue, the automotive sector faces a period of uncertainty, with potential ripple effects for consumers, manufacturers, and the broader economy.
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