By William Boston
BERLIN -- Global auto stocks were pummeled Thursday after
Daimler AG issued a profit warning overnight that the Mercedes-Benz
owner blamed on trade tensions between the U.S. and China.
Daimler's warning -- that Chinese retaliatory import duties on
cars built in the U.S. would hurt sales and profits of its
sport-utility vehicles -- sparked a 5% fall in its shares and also
hit other auto stocks as investors scanned for the next victim.
Shares in Fiat Chrysler Automobiles N.V. dropped 4.8%, BMW AG fell
3.7% and Volkswagen AG was down 4.6%. In the U.S., Tesla Inc. fell
3% and Ford Motor Co. was down 1%.
The caution suggests that the U.S. operations of German
manufacturers, which build tens of thousands of SUVs in the U.S.
for export to China, are set to be hit harder by new Chinese
tariffs than American manufacturers that are Beijing's explicit
target.
With global supply chains designed for a world of open trade and
low tariffs, Germany's auto giants are being caught in the
crossfire with few opportunities to shift sales to other, more
welcoming markets.
Thomas Sedran, Volkswagen's strategy chief, said he didn't want
to speculate about how the company would respond to higher U.S. and
Chinese tariffs, or trade tensions between the U.S., Mexico and
Canada, until these things actually happen. He did, however,
acknowledged that Volkswagen, the world's biggest auto maker by
sales, had few routes of escape.
"Shifting production on short notice is not possible, it's not
feasible. At the end of the day this will have an impact on the
pricing of vehicles. At this stage we are in a more reactive mode,"
he said.
A BMW spokesman said the company was exploring a "variety of
scenarios and strategic options," but wasn't making any changes
yet.
"The company's business outlook remains unchanged," the BMW
spokesman said, adding that its forecasts presume "global economic
and political conditions do not change significantly."
In May, China said that beginning July 1, it would cut tariffs
on vehicle imports to 15% from 25%, a longstanding rate, to quell
the Trump administration's complaints of a trade imbalance. But
after President Donald Trump went ahead and ordered import duties
on billions of dollars of Chinese goods, Beijing said it would
maintain the high duty on U.S.-made vehicles.
German auto makers such as BMW, and Daimler's Mercedes-Benz, as
well as electric-car maker Tesla and Ford, would have benefited
from the lowering of Chinese duties. Those companies collectively
sold about 240,000 U.S.-built vehicles in China last year,
according to research firm LMC Automotive.
"This effect cannot be fully compensated by the reallocation of
vehicles to other markets," Daimler said in a statement late
Wednesday. The company declined to comment further.
Daimler called China's import tax on U.S. autos the "decisive
factor" in its projection of lower-than-expected earnings. But
given the fact that the U.S. tariffs on China and Beijing's
retaliation won't come into effect until next month, some analysts
wondered if Daimler wasn't using the tariffs as a smoke screen to
conceal more fundamental problems with its SUV lineup.
"We find it curious that Daimler should act now," said Arndt
Ellinghorst, an analyst at Evercore ISI, a London-based brokerage.
"Could it be that the company's aging SUV portfolio is experiencing
lower sales and higher costs than expected across the board,
irrespective of the ongoing trade discussions?"
Still, Daimler's profit warning is one of the first signs that
the global trade dispute sparked by Mr. Trump is fueling a
retaliation that is hurting manufacturers in the U.S. that export
their products abroad.
"It is not a trade war yet," a senior German government official
said this week. "But this is how trade wars begin."
The German auto industry has long made a huge bet on China. BMW
and Mercedes-Benz generate about a quarter of their unit sales in
China, with a large portion of those vehicles exported from their
factories in Europe and North America.
Daimler, BMW and Volkswagen now operate four manufacturing
plants in the U.S. that employ 36,500 American workers. Last year,
the German companies produced 804,200 vehicles at those plants, but
less than half were sold in the U.S. The rest, around 480,911
vehicles, were exported to Canada, Mexico, Europe, China and other
markets.
Of the 594,000 vehicles that BMW sold in China last year,
including its top-line sedans and SUVs, around 194,000 were
imported. Just under 100,000 of those vehicles came from BMW's
plant in Spartanburg, South Carolina, the company's main production
site for its X-series line of SUVs, which produced 371,000 vehicles
last year, BMW said.
Though not related to the U.S. tariff moves, BMW is already
shifting some U.S. SUV production, a portion of its X3 output, to
China rather than continue to export those vehicles from the U.S.
An acceleration of this trend could mean job losses in the U.S.
Volvo, the Chinese-owned Swedish premium car maker, opened its
first U.S. manufacturing plant in South Carolina this week. The
plant will manufacture Volvo's new S60 luxury sedan and already
employs 1,200 workers. By the end of the year, that number will
rise to 1,500, Volvo CEO Hakan Samuelsson told The Wall Street
Journal. In three years, Volvo plans to add a second model and
boost employment to 4,000 people.
"But half of those people will build cars for export," said Mr.
Samuelsson. "Those jobs would be in jeopardy if trade is
restricted. We hope that will not happen."
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
June 21, 2018 11:20 ET (15:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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