President Trump’s new tariffs spooked the market, causing major stock indexes to drop sharply. 

However, Goodyear’s (GT) shares jumped over 10% because of the company’s strong U.S. manufacturing base and lower exposure to foreign imports. 

With significant tariffs being placed on tire imports from Asia and Mexico, Goodyear can better compete on price, and as consumers keep their vehicles longer, its replacement tire segment should see higher demand. 

Coupled with its ongoing “Goodyear Forward” initiative to cut costs and improve efficiencies, the company is poised to benefit from the tariffs.

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When President Trump unveiled his extensive tariff plan last week, markets responded with immediate concern. 

The S&P 500 fell by 4.8%, the Dow Jones Industrial Average dropped 4%, and the Nasdaq plummeted by 6% in a single trading day. 

Investors moved quickly to shed stocks with international exposure as they feared potential damage to corporate profits across industries.

But even in this sea of red, some companies stood out as winners. 

The Goodyear Tire & Rubber (GT) saw its shares jump more than 10% when most stocks were taking a beating.

Goodyear’s strong performance during this selloff stems from its substantial manufacturing presence in the United States. 

With 8 tire manufacturing plants located domestically and less reliance on imports from countries targeted by the new tariffs, the company stands to benefit while its foreign competitors face major challenges.

Foreign tire imports have grown steadily in recent years, increasing from $13 billion in 2019 to $17 billion in 2024. 

These imports have steadily eaten into American manufacturers’ market share, with Goodyear specifically pointing to low-priced imports as a persistent challenge to its business.

Under the new tariff plan, imported tires will face significant taxes based on their country of origin.

Thailand, the largest tire exporter to the U.S. at 50 million units annually, will face a 36% tariff. Mexico’s 25 million units will see a 25% tariff. Vietnam, which exports 20 million units to the U.S., will be hit with a steep 46% tariff, while Cambodia faces the highest rate at 49%.

These tariffs give Goodyear a double advantage in the market. First, the company can now compete more effectively on price against foreign manufacturers who will either need to raise prices or absorb significant cost increases. 

Second, the broader changes in the automotive market could shift in favor of Goodyear’s business model.

These tariffs could increase new vehicle prices by about $6,000 for imported vehicles and around $3,000 for domestically produced vehicles that still use 50%-60% imported components. 

This price pressure could reduce new vehicle sales in the U.S. by approximately 3 million units annually from the current level of about 16 million.

While this reduction might hurt the portion of Goodyear’s business that supplies original equipment manufacturers, which is about 28% of its tire sales, the replacement tire market represents a much larger 73% of its business. 

As consumers delay new vehicle purchases and keep their current vehicles longer, demand for replacement tires should increase, directly benefiting Goodyear’s replacement business.

Beyond these tariff advantages, Goodyear has been working on a comprehensive transformation plan called “Goodyear Forward”. 

Announced in November 2023 following pressure from activist investors, the transformation plan is centered around selling non-core assets, optimizing manufacturing, improving how they buy materials, cutting corporate costs, enhancing pricing strategies, and fixing supply chain issues.

The company already achieved $500 million in annual savings last year and expects an additional $750 million in savings this year. 

Goodyear’s ultimate goal is to reach $1.5 billion in annual savings, which would significantly improve its profit margins.

Despite these factors, the market is concerned about the tariffs causing overall tire sales to decline in the U.S..

Our EEA model clearly shows this.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform return on assets ”ROA” to only improve around 2%, below the cost of capital.

Goodyear had trouble with its profitability because of the much cheaper offerings coming from mainly South Asia. 

Tariffs could help the company to get a pricing advantage in the U.S. compared to the foreign manufacturers and gain market share.

This could result in Goodyear improving its ROA to its historical highs of around 6%.

The company’s domestic manufacturing presence, its focus on the replacement tire market, and ongoing transformation initiatives make it particularly well-suited to benefit from tariffs.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research