Photo credit: REUTERS
June 21, 2018 06:01 CET — UPDATED: June 21 8:59 CET – new´story
FRANKFURT — Daimler cut its 2018 profit forecast, blaming a trade war between China and the United States and stricter pollution targets, sparking fears of a wave of earnings downgrades across the industry.
Daimler became the first prominent company to cut its profit outlook due to escalating trade tensions, claiming Chinese customers will buy fewer cars because of increased import tariffs for U.S. vehicles into the Chinese market.
Tariffs will result in slightly lower earnings before interest and taxes (EBIT) this year, Daimler said on Wednesday. It previously saw its 2018 EBIT rising slightly.
“We do not believe Daimler will be the only OEM (original equipment manufacturer) to reduce guidance. Other OEMs are also exposed to similar trends that Daimler cites in various degrees,” Morgan Stanley analysts said.
Many Mercedes C-class sedans and Mercedes SUVs are built in Alabama in the U.S. and then shipped to China.
BMW’s exports of SUVs from the U.S. may suffer similarly to Daimler, Morgan Stanley said.
BMW is the largest vehicle exporter from the U.S. in terms of value. Its largest global factory is in Spartanburg, South Carolina. Around 18 percent of all BMWs sold in China were exported from the U.S. last year, and the automaker has warned a further escalation of the trade row “would be harmful for all stakeholders.”
BMW last year exported more than 100,000 SUVs to China from Spartanburg. The number will decline this year after the automaker this year stopped exporting the X3 from the U.S. to China, moving production to a plant in Rosslyn, South Africa and another in Shenyang, China.
The automaker will continue to export the high-end X5 to China form the U.S. Last year, it shipped 46,151 of those vehicles.
BMW had no immediate comment about the impact on profits, but a spokeswoman said on Wednesday: “Barrier-free access to markets is a key factor not only for our business model, but also for growth, welfare and employment throughout the global economy.”
BMW faces a $ 965 million impact from tariffs, with Daimler exposed to a $ 765 million hit, analysts at Evercore ISI have said.
Daimler shares dropped 3.8 percent to the bottom of Germany’s blue-chip DAX index in pre-market trade at brokerage Lang & Schwarz on Thursday. Shares in BMW and Volkswagen, Germany’s other two major automakers, were down 2.7 and 1.3 percent, respectively.
Daimler’s revised forecast comes as U.S. President Donald Trump is proposing to impose tariffs on imported vehicles on the grounds that trade imbalances on many products threaten U.S. national security. He is separately promising to impose tariffs on up to $ 200 billion of Chinese goods. China has warned it will retaliate with levies on U.S. products.
Separately on Wednesday, Volvo Cars CEO Hakan Samuelsson warned higher tariffs could undermine the Chinese-owned automaker’s plans to hire up to 4,000 workers at a new vehicle assembly plant in South Carolina.
Daimler is one of the biggest global companies to cut its guidance and blame trade tensions. Its revised forecast came on the same day as reports that German automakers backed a proposal that the European Union drop tariffs on vehicles to defuse trade tensions.
Beijing’s proposed 25 percent tax on U.S. car factory exports will hit nearly 270,000 vehicles, with German automakers accounting for $ 7 billion of the $ 11 billion total.
While the U.S. and China have not yet imposed new tariffs, Daimler said it expected them, and that it would not be able to recover the costs from customers. “Fewer-than-expected SUV sales and higher-than-expected costs, not completely passed on to the customers, must be assumed because of increased import tariffs for U.S. vehicles into the Chinese market,” it said in a regulatory filing.
WLTP emissions challenge
Daimler also said a new vehicle certification process based on stricter fuel efficiency test procedures would hit sales in the second half, and warned earnings at Mercedes-Benz Vans unit would suffer because of a vehicle recall for diesel-engined models.
Several automakers including Volkswagen have said they face challenges adapting their vehicle fleets to meet the new Worldwide Harmonized Light Vehicle Test Procedure (WLTP), which is based on real-driving data rather than theoretical scenarios.
Because the new regime gives higher CO2 readings than the old system, it will force some automakers to delay road certification and sales, or push vehicles into a higher tax bracket.
Daimler also now sees earnings at its vans division dropping significantly after German regulator KBA last month ordered the recall of Mercedes-Benz Vito vans fitted with 1.6-liter diesel engines, saying they breached emissions rules. Daimler has said it will appeal KBA’s decision. It previously expected earnings at the vans business to decline only slightly.
South Korean automakers fell in early Asian trade on Thursday, while Japanese peers gained, paring earlier losses.
Japanese and South Korean automakers for the most part do not ship vehicles made in the U.S. to China. Most of the vehicles sold in China are made locally through their Chinese joint ventures, along with imports from Asia.
But analysts said the U.S. trade spat with China raised concerns about knock-on effects on other countries, like potential U.S. auto tariffs on all vehicle imports.
“South Koreans have higher portions of vehicle imports in the U.S. than peers, making them vulnerable to U.S. potential tariffs,” Kwon Soon-woo, an analyst at SK Securities, said.
Kia Motors fell as much as 2.9 percent, while Hyundai Motors fell as much as 1.9 percent to their lowest levels in over 28 months.
Bloomberg contributed to this report
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