Trade war hits Daimler profit, may sweep sector

FRANKFURT: German luxury carmaker 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.
The company said late on Wednesday that import tariffs on cars exported from the United States to China would hurt sales of its Mercedes-Benz cars, resulting in slightly lower earnings before interest and taxes (EBIT) this year. It previously saw 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.
German rival BMW’s exports of sport-utility vehicles (SUVs) from the United States may suffer similarly, and stricter vehicle certification tests will hit all European manufacturers in the second half of this year, they said.
Slower sales of SUVs from the Mercedes-Benz plant in Alabama to China will result in a hit of around 250 million euros ($289 million), Evercore ISI analysts said.
At 08:20 GMT, Daimler shares were down 4 per cent at 58.05 euros, the biggest fall by a European blue-chip stock, while shares in BMW and Volkswagen were down 2.9 and 2 per cent, respectively.
Daimler’s revised forecast comes as US President Donald Trump is proposing to impose tariffs on imported vehicles on the grounds that trade imbalances on many products threaten US 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 US products, potentially including the Mercedes-Benz SUVs shipped to China from Alabama.
Stocks in a wide range of companies have see-sawed in recent weeks as investors tried to assess the risk to corporate profits from the Trump administration’s trade policy.
Daimler is one of the biggest global companies to cut its guidance and blame trade tensions.
The German firm’s 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 per cent tax on US car factory exports will hit nearly 270,000 vehicles, with German carmakers accounting for $7 billion of the $11 billion total.
While the United States and China have not yet imposed new tariffs, Daimler said it expected them, and 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 US vehicles into the Chinese market,” it said in a regulatory filing.
BMW, the largest vehicle exporter from the United States by value, has its largest factory in Spartanburg, South Carolina and faces a $965 million impact from tariffs, with Daimler exposed to a $765 million hit, Evercore ISI analysts have said.
Around 18 per cent of all BMWs sold in China were exported from the United States last year, and the carmaker has warned a further escalation of the trade row “would be harmful for all stakeholders”.
BMW this year stopped exporting the X3 from the United States to China amid escalating trade tensions, moving production to a plant in Rosslyn, South Africa and another in Shenyang, China.
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.” — Reuters