The Aston Martin (LSE:AML) share price was misfiring long before President Trump imposed punishing 25% tariffs on foreign carmakers. This development has heaped further misery on the company. At 62p, the FTSE 250 stock now trades at its lowest level since the firm’s IPO in 2018.
Announced less than a fortnight ago, specific duties on the car industry came into effect on 3 April. For Trump’s ‘Liberation Day’ speech last week, American carworkers gathered in the Rose Garden audience. The optics couldn’t have been clearer. Imported cars have taken centre stage in Trump’s “economic revolution“.
So, is this the final nail in the coffin for Aston Martin shares? Or is there light at the end of the tunnel for the iconic British sports car manufacturer? Let’s explore.
The US is the firm’s largest market
The impact of these new vehicle levies on the Aston Martin share price can’t be understated. Because the firm doesn’t manufacture cars stateside, it’s firmly in the firing line. In FY24, the company generated £591m of revenue in the US. That represents over 37% of the group’s worldwide total. Frankly, wealthy American car enthusiasts are indispensable to the business.
Aston Martin fears the tariffs could deal a £30m blow to gross profit. Considering last year’s pre-tax loss swelled to £289.1m from £239.8m the year before, this throws a spanner in the works of efforts to stage a turnaround.
To mitigate the damage, the company plans to bolster its coffers with £125m. This will be sourced from selling a minority stake in the Formula 1 racing team and a cash injection from executive chairman Lawrence Stroll, although he claims the timing of the extra investment was purely coincidental to Trump’s announcement. Regardless, whether this sum is sufficient remains to be seen.
Falling luxury car sales
Leaving tariffs to one side, the Aston Martin share price was already in a downtrend due to pre-existing challenges. Wholesale volumes slumped 9% in FY24 to 6,030 cars, despite new product launches. Acutely weak demand in China, the group’s second-largest market, was a key factor.
In addition, the company’s been grappling with manufacturing delays due to late component arrivals. Since many analysts believe Trump might have just taken a sledgehammer to global supply chains, the outlook on this front just got gloomier.
Aston Martin’s balance sheet has deteriorated. Net debt has ballooned 43% to £1.16bn, which does little to soothe investors’ concerns.
Not catastrophic?
Nonetheless, CEO Adrian Hallmark has dismissed fears that tariffs will be a catastrophe for the business, stating: “it’s a problem, but we can manage our way through it.”
On the bright side, a price-to-sales (P/S) ratio of 0.33 and a price-to-book (P/B) ratio of 0.79 are well below the firm’s historical averages. They’re also comfortably under benchmark levels that would usually pique the interest of value investors. At least many of the risks facing the stock appear to be priced in at today’s valuation.
But I’m not interested in buying today. Aston Martin shares were struggling before Trump’s bombshell, and the company’s future just became even more uncertain. In what’s likely to be a very difficult time for the stock market, I’m looking for stronger companies to invest in.
This post was originally published on Motley Fool
