Shares in German carmakers got off to a rough start Wednesday as investors reacted to Donald Trump's surprise election victory.
The key driver for the move lower is currency headwinds, according to Evercore ISI analyst Arndt Ellinghorst, who says German manufacturers have a combined $30 billion net exposure. The greenback fell against other major currencies as momentum moved in Trump's favour overnight, and traded around 0.8 percent lower against the euro early in the European session.
Shares in Germany's top carmakers, meanwhile, underperformed with losses of over 3 percent while the pan-European Stoxx Autos index dipped 2.5 percent one hour into the trading day. Ellinghorst points out that the US is Germany's largest trading partner with the country's car makers exporting about 620,000 cars to the country last year alone.
Daimler, whose shares have enjoyed a boost recently on the back of strong US sales for its Mercedes brand, was the worst performer against German rivals BMW and Volkswagen. Ellinghorst says investors will be anxious to assess the overall impact of the election on the economy at a time when anti-trade rhetoric has hit Europe's largest economy.
Germany's largest carmaker, Volkswagen, could be keeping an eye to a changing of the guard in Washington for another reason as it remains engaged in talks with the US Justice Department. Chief executive Matthias Mueller told CNBC in September he was hopeful a settlement will be reached by year end. Ellinghorst says all indications suggest the DoJ also wants to reach a deal with VW under the current administration.
In light of President-elect Trump's rhetoric around Mexico and his pointed comments about Ford's production south of the border, US automakers could gain more attention on Wall Street. According to Evercore ISI, General Motors is set to be the largest producer in Mexico next year, followed by Fiat Chrysler and then Ford.
Nancy Hungerford is a General Assignment Reporter and Anchor covering corporate, economic and geopolitical events. You can follow her on Twitter @nancycnbc.