Daimler, the German luxury carmaker recently announced cut-offs in its profit forecast due to the rising trade tensions between China and the U.S. The company took this step because it believes that the Chinese government will slap tariffs on the auto imports of America. Other aspects that also influenced this decision by Daimler include stricter pollution targets that can lead to an overall downgrade in the earnings across the auto-making industry.
Many SUVs of Daimler are built in Alabama and later on sent to China. These vehicles are now facing retaliatory tariffs from China. The largest country in Asia announced the tariffs in response to the $50 billion levies announced by President Donald Trump on Chinese goods.
More OEM’s may follow Daimler’s path
According to the company, the import tariffs on automobiles exported from the U.S. to China can cut down the sales of its Mercedes-Benz cars and is expected to slightly lower the earnings for the company before interest and EBIT this year. At the start of the year, the company recorded a slight rise in its EBIT taxes. An analyst at Morgan Stanley is of the opinion that apart from Daimler other OEMs (original equipment manufacturer) might follow similar trends in various degrees.
A strategist at Tokyo’s CLSA Securities, Nicholas Smith is of the opinion that there is a rising chance of an all-out trade war that will force most of the industries to follow Daimler. Makers of Miller Lite and Coors Lite also issued a warning recently that the tariffs by the U.S on aluminum imports can lead to $40 million loss. Experts in the field have also said that the sport-utility vehicles (SUVs) from BMW’s exports may also face consequences similar to Daimler. They believe that the European manufacturers will be severely hit by the stricter vehicle certification tests in the second half of 2018.
Shares of carmakers drop significantly
The shares of carmakers dropped after Daimler came out with its forecast. Daimler’s shares dropped 4.4% in Frankfurt which is considered to be its biggest slow down since early April this year. The shares of BMW slid down to 3.1%. The company exports its vehicles to China from its Spartanburg plant. Shares of another major car manufacturer, Volkswagen also slipped 2.8%. However, the decline is comparatively lesser than the other two companies because it has a limited trade exposure to China-U.S.
Accordingto Smith, “Taking the cynic’s view, I think there will be a lot of companies needing to cut sales forecast and this will be an incredibly convenient reason to blame it on.” He further added that both Europeans and Chinese are going to find it difficult to face this situation and it is a nature of the trade-war that everyone involved loses.