Daimler predicts profit hit on trade war
It becomes 1st prominent company to cut earnings forecast due to US-China spat
MICHIGAN: Daimler AG became the first prominent company to cut its profit outlook due to escalating trade tensions between the US and China, claiming Chinese customers will now buy fewer cars after Beijing has slapped tariffs on US auto imports.
The German luxury-car maker said on late Wednesday its full-year earnings excluding some items will be slightly lower than last year. Many Daimler C-Class sedans and SUVs are built in Alabama and then are shipped to China.
Those vehicles are now caught up in retaliatory tariffs announced in China in response to President Donald Trump’s levies on US$50bil in Chinese goods.
With the rising prospect of an all-out trade war, few industries will be spared and more companies may have to follow Daimler, said Nicholas Smith, a strategist at CLSA Securities in Tokyo.
MillerCoors, the maker of Miller Lite and Coors Lite, warned last week that US tariffs on aluminum imports could result in a US$40mil hit to its bottom line.
Shares of German carmakers fell yesterday. Daimler dropped 2.9% at 9:06 am in Frankfurt.
BMW, which also exports vehicles to China from its plant in Spartanburg, South Carolina, declined 2.1%. Volkswagen AG, which has limited China-US trade exposure, slipped 1.4%.
BMW, the second-biggest luxury carmaker, last year exported more than 100,000 sport utility vehicles to China from its US factory. While that number will decline this year with BMW moving to produce its X3 SUV in China, it’ll continue to export the high-end X5.
Last year, it shipped 46,151 of those vehicles. BMW is exposed to an operating-earnings hit of 100 million euros (US$115mil) to 200 million euros, according to analyst Juergen Pieper at Bankhaus Metzler.
“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,” Smith said.
“The Europeans will take a hit on this, the Chinese are going to find this very bumpy and it’s in the nature of a trade war that everyone loses.” The US$50bil in tariffs announced by Trump and China’s in-kind response may just be a start in the escalating conflict.
On Monday, Trump said he had instructed the US Trade Representative’s office to identify US$200bil in Chinese imports for additional tariffs of 10%.
He said the US would impose tariffs on another US$200bil after that if Beijing retaliates.