Tariffs + Dual Pressure from Chinese Competition, European Car Manufacturers Face Massive Short Selling by Hedge Funds

The tariff shock triggered by the Trump trade war and the rise of Chinese competitors are driving hedge funds to short the European automotive industry heavily, with several major European car manufacturers and parts suppliers becoming targets for short selling.

Since Trump returned to the White House in January, short positions against European automotive and parts manufacturers have continued to rise. According to data provider Breakout Point, French parts manufacturer Valeo has become the second most shorted stock in Europe.

The U.S. imposes a 27.5% tariff on European cars, which was agreed to be reduced to 15% last month, but according to the article, U.S. officials stated that these measures would not be relaxed unless the EU legislates to lower tariffs on U.S. goods .

The second-quarter financial reports show significant impacts from tariffs. Stellantis reported a loss of 300 million euros due to the new tariffs, while Volkswagen reported a loss of 1.3 billion euros from the trade war. The cash flow of Germany's three major car manufacturers is expected to decrease by more than 10 billion euros this year.

Meanwhile, European car companies are losing their profit pool in the Chinese market, facing strong competition from Chinese rivals like BYD.

Surge in Short Positions, Institutions Bet Big

According to S&P Global data, the stock lending volume in the automotive and parts industry (a measure of short positions) has surged by 35% this year, reaching a peak in 2025 after Trump introduced the so-called "reciprocal tariffs" in April.

New York hedge fund Jericho holds a short position of 0.52% in Stellantis, valued at approximately 127 million euros. BlackRock holds a short position in Volvo worth 75 million euros.

French parts supplier Valeo has attracted short bets from London hedge funds Kintbury and Marshall Wace, as well as U.S. hedge funds Millennium, Citadel, and DE Shaw, with publicly disclosed short positions totaling approximately 355 million euros.

A London-based hedge fund manager stated:

"The automotive industry is in trouble. German car manufacturers made a lot of money in China, but that profit pool is disappearing, and tariffs make it even more difficult for companies exporting to the U.S."

Tariff Impact on Financial Performance

The second-quarter financial reports show that tariffs have had a substantial impact on major European car manufacturers. Stellantis reported a loss of 300 million euros due to the new tariffs, with its North American sales down 25% compared to the same period last year.

Volkswagen's financial report stated that the trade war caused a loss of 1.3 billion euros and, along with Porsche and Mercedes-Benz, lowered its future guidance. The cash flow of Germany's three major car manufacturers is expected to decrease by more than 10 billion euros this year.

Even American car manufacturers have not been spared, with General Motors and Ford expected to lose $3.5 billion and $2 billion in earnings this year due to tariffs Valeo is particularly impacted, as the company supplies components such as lighting, heating, and technology systems to major automotive manufacturers in Europe, the United States, and China, facing a slowdown in demand, including a decline in electric vehicle component demand. The company warned last month that a weak dollar would result in a loss of €750 million this year.

Reports indicate that while some component suppliers have been able to pass on a larger proportion of tariff costs to their automotive manufacturer customers, the uncertainty caused by the Trump trade war remains a challenge. Vanessa Jeffriess, Vice President of Industrial Research at Jefferies, stated:

"These automotive parts companies show limited or no sales growth at all, with no signs of improvement."

The Rise of Chinese Competitors Intensifies Structural Challenges

According to media reports, many investors believe that the trade war has only exacerbated the long-term issues already facing the European automotive industry. Before Trump imposed tariffs, many European car manufacturers were already struggling against strong Chinese competitors like BYD.

A hedge fund manager in London stated:

"Tariffs are part of our short thesis, but the real issue for the automotive industry is that they will never sell as many cars in China as they did in the past. They are lagging in technology and electric vehicles. This is a long-term decline, and it will last for some time."

Craig Cameron, Senior Vice President of European Equities at Franklin Templeton, stated:

"If you are an automotive manufacturer, you are facing the worst period in a long time. This is the industry that worries me the most, being squeezed from both sides."