Analysis of the Impact of the EU-Mercosur Trade Agreement on Listed Companies in Key European Industries

Now I have collected sufficient information, let me conduct a systematic and comprehensive analysis for you.

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After 25 years of tough negotiations, the EU and Mercosur finally secured the support of a majority of EU member states on January 9, 2025, and officially signed the agreement in Paraguay on January 17. The agreement covers 27 EU member states and four countries (Brazil, Argentina, Uruguay, Paraguay), with a population of over 700 million, making it one of the world’s largest free trade zones [1][2].

In terms of trade scale, the goods trade volume between the EU and Mercosur in 2024 was approximately 110 billion euros, which is only one-eighth of the EU-US trade scale and also significantly lower than the EU-China trade volume [3]. Even based on the most optimistic official estimate of the European Commission, by 2040, the economic benefits brought by this agreement are expected to only increase the EU’s GDP by 0.05%, while the overall growth rate of Mercosur countries is about 0.25% [3].

The agreement stipulates that both parties will gradually eliminate most commodity tariffs over a long period of time, and ultimately about 91% to 92% of the tariffs between the two parties will be eliminated [3]:

Industry	Current Tariff	Elimination Schedule
Automobiles	15-35%	Gradually eliminated over 18-30 years
Mechanical Products	14-20%	Eliminated in phases
Chemical Products	Up to 18%	Eliminated in phases
Agricultural Products	20-35%	Access restricted via tariff quotas

The agreement sets permanent quantity restrictions on sensitive agricultural products, manages imports through Tariff Rate Quotas (TRQ), and establishes bilateral safeguard clauses that allow the EU to temporarily reinstate tariffs in the event of a surge in imports or a significant drop in prices [4].

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European automakers are widely regarded as the main beneficiaries of this agreement. EU auto exporters currently face a 35% import tariff in Mercosur countries, and the gradual elimination of this barrier will significantly enhance the competitiveness of European automobiles in the South American market [5].

The European Automobile Manufacturers’ Association (ACEA) clearly stated: “An agreement like Mercosur is not only a trade opportunity but also a strategic necessity for the European automotive industry.” The association urged the EU Council to promote the ratification of the agreement as soon as possible, stating that the agreement will bring “significant export growth opportunities” to the automotive industry [5].

Indicator	Data
Market Capitalization	50.83 billion USD
Current Stock Price	101.40 USD
Price-to-Earnings Ratio	7.14x
1-Year Stock Performance	+8.54%

Volkswagen has deep roots in the South American market, holding approximately 17% of the market share in Brazil [6]. After the signing of the agreement, Volkswagen’s high-end models (such as Audi, Porsche, etc.) will directly benefit from tariff reductions, as these models currently mainly rely on whole-vehicle exports from Europe. However, Volkswagen’s mid-to-low-end models produced in Brazil (such as Volkswagen Gol, etc.) may face more fierce competition from Chinese brands.

Volkswagen’s current valuation is at a historical low (with a price-to-earnings ratio of only 7.14x and a price-to-book ratio of 0.30x), reflecting the market’s concerns about its traditional business model. The export growth expectations brought by the agreement may provide a catalyst for valuation repair, but the short-term performance boost is limited because tariff reductions are gradual [7].

Indicator	Data
Market Capitalization	27.73 billion USD
Current Stock Price	9.60 USD
Price-to-Earnings Ratio	2.88x
1-Year Stock Performance	-25.47%

Stellantis is the absolute leader in the Mercosur market, ranking first in the three major markets of Brazil, Argentina, and Chile. In 2024, the company’s sales volume in the South American region exceeded 878,000 units, with a market share of 23.5%, including a 31.4% market share in Brazil [6].

The company announced a record 5.6 billion euro investment plan (2025-2030) in March 2024, which will be used for new product development and electrification transformation in the South American region [6]. This strategic layout enables Stellantis to fully leverage the improved market access brought by the agreement, while avoiding part of the tariff risks through local production.

However, Stellantis is currently facing severe profit pressure. The latest quarterly financial report shows that the EPS was -0.91 USD, which is far lower than the analysts’ expected 0.41 USD, and the performance unexpectedly declined sharply [7]. The company’s high dividend strategy (with a relatively high dividend yield) is in contrast to its weak profitability, which may affect its valuation repair space.

Renault also has an important position in the South American market, having established a complete industrial chain through in-depth integration with local partners. The benefits of the agreement for Renault are mainly reflected in:

• Gradual reduction of export tariffs for high-end brands (Alpine, Dacia)
• Optimization and integration of parts supply chains
• Cooperation opportunities with Mercosur countries in the field of electric vehicles

Company	Analyst Consensus	Valuation Attractiveness	Growth Catalyst
Volkswagen	Hold	Medium (Undervalued)	High-end vehicle export growth
Stellantis	Hold	High (Significantly Undervalued)	South American market share advantage
Renault	-	Medium	Electric vehicle cooperation opportunities

The competitive pressure on European automakers from Chinese brands (especially BYD) is increasing. BYD’s market share in Brazil has risen from 0% in 2020 to 4% in 2024, and it continues to expand local production [6]. Although the agreement provides improved market access, European automakers still need to face fierce competition from China.

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The EU-Mercosur Agreement brings benefits to the chemical industry mainly at two levels:

1. Tariff Reduction:
   Mercosur countries have committed to gradually eliminating the maximum 18% tariff imposed on EU chemical products [8]
2. Raw Material Supply:
   Mercosur countries (especially Argentina and Brazil) have rich reserves of Critical Raw Materials, which helps European chemical companies achieve supply chain diversification [8]

The European Chemical Industry Council (Cefic) stated: “The European chemical industry is facing an unprecedented crisis, with weak demand and intensified global competition. The EU-Mercosur Agreement is the preferred tool for our export-oriented industry to access key growth markets and raw materials.” [8]

Indicator	Data
Market Capitalization	39.80 billion USD
Current Stock Price	44.59 USD
Price-to-Earnings Ratio	145.78x
ROE	0.80%

BASF has a deep layout in the South American market. In June 2023, the company completed a 6.3 million euro investment project for the integration of the polyamide 6.6 industrial chain at its Batistini plant in Brazil, increasing the plant’s polymer supply capacity by 15% [9]. Over the past 5 years, BASF has invested more than 1.4 billion euros in global engineering plastics, mainly used to expand its product portfolio.

The potential benefits of the agreement for BASF include:

• Reduction of export tariffs for engineering plastics
• Establishment of a more complete local production network in Mercosur countries
• Access to raw material resources in Brazil and Argentina

However, BASF’s current valuation is at a high level (with a dynamic price-to-earnings ratio of 145.78x), and its ROE is only 0.80%, showing significant pressure on profitability [7]. In the short term, the incremental benefits brought by the agreement may be offset by the cost pressure in the European local market.

Indicator	Data
Market Capitalization	175.95 billion USD
Current Stock Price	376.80 USD
Price-to-Earnings Ratio	29.01x
Operating Profit Margin	27.20%

Linde is the world’s largest industrial gas supplier, with an important business layout in the South American market. Its EMEA (Europe, Middle East, Africa) business accounts for approximately 25.6% of its total revenue, while the Americas business accounts for 45.3% [7].

The benefits of the agreement for Linde are mainly reflected in:

• Reduction of tariffs on industrial gas exports to the Mercosur market
• Increased opportunities to participate in infrastructure construction projects in South America
• Increased demand brought by the improved export competitiveness of customers in industries such as steel and chemicals

Linde has strong financial performance (with an operating profit margin of 27.20% and a net profit margin of 21.17%) and a relatively reasonable valuation (29x price-to-earnings ratio), making it one of the most attractive investment targets in the chemical industry [7].

Indicator	Data
Market Capitalization	91.96 billion USD
Current Stock Price	159.22 USD
Price-to-Earnings Ratio	26.83x
Operating Profit Margin	18.69%

Air Liquide is France’s largest industrial gas company, and it is the global dual oligopolist in the industry together with Linde. The company also has an important layout in the South American market, especially in the steel, chemical, and medical gas sectors in Brazil and Argentina.

Air Liquide’s valuation (26.83x price-to-earnings ratio) is lower than Linde’s, showing a certain valuation discount. The company’s cooperation projects with BASF in the fields of green chemistry and carbon neutrality also provide it with differentiated competitive advantages [9].

Company	Analyst Consensus	Valuation Level	Investment Attractiveness
BASF	Buy	High (Expensive)	Medium
Linde	Strong Buy	Medium	High
Air Liquide	-	Medium	Medium-High

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Unlike the industrial sector, European agricultural producers are widely regarded as the main losers of the agreement. Mercosur countries have significant cost advantages in the agricultural sector, including:

• Abundant land resources
• Lower labor costs
• Relatively loose environmental and animal welfare regulatory standards [4]

The European Commission has established a 6.3 billion euro fund to address the adverse effects that the agreement may have on European farmers [4]. According to a 2020 assessment by the London School of Economics (LSE) for the EU, the agreement may lead to a approximately 1.2% decline in EU beef and lamb production, and a approximately 1% decline in sugar production [3].

Indicator	Data
Market Capitalization	48.58 billion USD
Current Stock Price	75.44 USD
Price-to-Earnings Ratio	26.46x
1-Year Stock Performance	+16.03%

As one of the world’s largest dairy and plant-based food companies, Danone may be affected by the agreement in the following aspects:

• Low-priced dairy products from South America may enter the European market, compressing the profit margin of European dairy farmers
• The infant formula market faces more intense international competition

• The EU will gradually eliminate tariffs on dairy products exported to South America (30,000 tons of cheese quota, 10,000 tons of milk powder quota) [4]
• 344 “Geographical Indications” are protected in Mercosur countries, which is conducive to the promotion of Danone’s high-end brands

Danone’s financial performance is relatively stable, with its stock price rising 16.03% in the past year, reflecting the market’s recognition of its product portfolio transformation (which focuses more on high-growth, high-margin medical nutrition products) [7].

Enterprise Type	Impact Analysis
Beef Producers	Face competitive pressure from low-priced imported beef from South America, but the quota limit (99,000 tons) provides protection
Poultry Producers	Brazilian poultry products are highly competitive, but there are regulatory barriers in terms of health and safety
Sugar Producers	Production may decline by approximately 0.7%, but quota management limits the direct impact
Dairy Enterprises	Export opportunities increase, but need to face the penetration of South American products into the local market

Company/Industry	Impact Degree	Investment Recommendation
Danone	Mixed (both pros and cons)	Hold, focus on export growth
Dairy Industry	Neutral to Negative	Cautious, focus on quota implementation
Beef Industry	Negative	Avoid, wait for clear protection measures
Sugar Industry	Slightly Negative	Neutral, focus on cost control

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Industry	Average Price-to-Earnings Ratio	Valuation Status	Valuation Upgrade Potential
Automotive	5.01x (2.88-7.14 for Volkswagen)	Historical Low	Medium-High
Chemical	67.21x (26.83-145.78)	Obvious Divergence	Linde > Air Liquide > BASF
Agricultural	26.46x (Danone)	Reasonable	Neutral

• Clarification of the formal ratification and implementation schedule of the agreement
• Implementation of the first batch of tariff reduction measures
• Automakers and chemical companies announce South American investment plans

• Improvement of export data verifies the growth logic
• Supply chain diversification reduces geopolitical risks
• Increased market penetration in South America

• Profit increment brought by the complete elimination of tariffs
• Scale effect brought by market expansion
• Enhancement of brand value in emerging markets

Risk Type	Specific Content	Impact Degree
Ratification Risk	The agreement still needs to be approved by the European Parliament, and there is a possibility of rejection	High
Implementation Risk	Tariff reductions are gradual, with limited short-term performance contribution	Medium
Competition Risk	Chinese brands are expanding rapidly in the Mercosur market	High
Political Risk	Changes in the political situation in Brazil/Argentina may affect the implementation of the agreement	Medium
Environmental Risk	Opposition from environmental groups may delay the implementation of the agreement	Medium

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Based on the above analysis, we put forward the following industry allocation recommendations:

Industry	Allocation Recommendation	Core Logic
Automotive	Overweight	Valuation is at a historical low, and the agreement provides long-term growth catalysts
Chemical	Neutral Weight	Obvious divergence, prefer Linde, be cautious with BASF
Agricultural	Underweight	Faces short-term structural pressure, wait for clearer protection measures

• Absolute leader in the South American market (23.5% market share)
• Extremely attractive valuation (2.88x price-to-earnings ratio)
• Has announced a 5.6 billion euro South American investment plan
• Risk: Significant short-term profit pressure, need to pay attention to performance improvement progress

• Global leader in industrial gases
• Stable financial performance, with an operating profit margin of 27.2%
• Reasonable valuation (29x price-to-earnings ratio)
• Benefits from South American industrial development and export growth

• Valuation is at a historical low (7.14x price-to-earnings ratio)
• High-end brand exports are expected to benefit from the agreement
• Risk: Need to pay attention to the competitive situation in the Chinese market

1. Batch Position Building:
   Given the uncertainty of the agreement’s ratification, it is recommended to build positions in related targets in batches
2. Hedging Strategy:
   Consider buying industry ETFs with low volatility as diversification tools
3. Focus on Catalysts:
   Closely track the progress of the agreement’s approval in the European Parliament and the first batch of tariff reduction measures
4. Performance Verification:
   Pay attention to the company’s statements on South American business growth during the earnings season

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The EU-Mercosur Trade Agreement is a historic agreement reached after 25 years of negotiations, which will provide European enterprises with more convenient access to the South American market with a population of 700 million. From the perspective of industry impact:

1. Automotive Industry
   is the biggest beneficiary; enterprises such as Volkswagen, Stellantis, and Renault will gradually benefit from the reduction of the 35% tariff. Although the short-term performance contribution is limited, the long-term growth space is considerable. Currently, auto stocks are at a historical low valuation, providing attractive entry opportunities.

2. Chemical Industry
   benefits as a whole, but shows obvious divergence. Linde and Air Liquide are more attractive investment targets due to their stable financial performance and reasonable valuation; although BASF has a layout in South America, its valuation is relatively high and its profitability is under pressure.

3. Agricultural Sector
   faces structural pressure; beef, dairy, and sugar producers need to cope with competition from low-priced products from South America. Enterprises with export capabilities such as Danone may benefit from the agreement, but the overall industry is under pressure in the short term.

4. In terms of valuation
   , the automotive industry is at a historical low valuation, with the largest upward elasticity; the chemical industry has divergent valuations, with high-quality targets being attractive; the agricultural industry has a reasonable valuation but lacks obvious catalysts.

Investors should pay attention to the political risk of the agreement’s ratification (there is still resistance from agricultural powers such as France) and adopt a batch position building strategy. We top-pick Stellantis and Linde as direct beneficiaries of the agreement’s signing.

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[1] European Parliament - “An update on the economic, sustainability and regulatory effects of the EU-Mercosur Trade Agreement” (https://www.europarl.europa.eu/RegData/etudes/STUD/2025/754476/EXPO_STU(2025)754476_EN.pdf)

[2] European Commission - “EU-Mercosur partnership agreement” (https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mercosur/eu-mercosur-agreement_en)

[3] The Initium - “EU to Sign Free Trade Agreement with Mercosur: How to Alleviate the Imbalance Between Agriculture and Industry?” (https://theinitium.com/20260113-eu-mercosur-to-sign-trade-deal-zh-hans/)

[4] European Commission - “Factsheet: EU-Mercosur Partnership Agreement - Opening opportunities for European farmers” (https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mercosur/eu-mercosur-agreement/factsheet-eu-mercosur-partnership-agreement-opening-opportunities-european-farmers_en)

[5] ACEA - “EU-Mercosur ratification delay threatens strategic opportunities for European auto industry” (https://www.acea.auto/press-release/eu-mercosur-ratification-delay-threatens-strategic-opportunities-for-european-auto-industry/)

[6] POLITICO - “EU-Mercosur mega trade deal: The winners and losers” (https://www.politico.eu/article/eu-mercosur-trade-deal-the-winners-and-losers/)

[7] Jinling API Market Data - Listed Company Financial Data

[8] Cefic - “Further delays on the EU-Mercosur agreement put the EU’s credibility at risk” (https://cefic.org/news/further-delays-on-the-eu-mercosur-agreement-put-the-eus-credibility-at-risk/)

[9] BASF - “BASF in South America” (https://www.basf.com/dam/jcr:a8b37160-266b-3351-8e50-4d08b8629728/projeto_PT04.pdf)

[10] Le Monde