Trade dispute with China threatens export of U.S.-made vehicles,
BMW, Daimler and Volvo face tough choices after investing billions in U.S. production
President Donald Trump’s trade battle with China is threatening the U.S.’s growing role as an auto exporter. In recent years, BMW AG, Daimler AG and China’s Zhejiang Geely Holding’s Volvo Cars have invested billions to expand U.S. factory production with the goal of exporting a significant number of vehicles to China and other markets world-wide.
But the tit-for-tat tariffs on U.S.-China trade could prompt the manufacturers to rethink that strategy. On Friday, China raised to 40 per cent its tariff on auto imports from the U.S. as part of a broader retaliation against the Trump administration’s move to impose duties on $34 billion in Chinese-made goods. BMW and Daimler are among the foreign auto makers that stand to suffer the most from the move. Both German auto makers have massive factories in the U.S. South that employ thousands of workers and build luxury sport-utility vehicles for sale in the U.S. and export to China and Europe. The tariff will force the companies to either charge customers in China more or absorb the added costs.
Volvo Cars also opened a $1.1 billion plant near Charleston, S.C., last month to produce its S60 midsize sedan for North American markets. In the next three years, the company plans to add an SUV model that will be sold domestically and exported, including to China, and boost employment to more than 4,000 workers from the current 1,200.
“Half of the 4,000 jobs will build cars for export,” Chief Executive Hakan Samuelsson said in a recent interview. “That could be jeopardized if something were to restrict trade.” When BMW celebrated the 25th anniversary of its Spartanburg, S.C., plant last year, CEO Harald Krüger praised the state for welcoming the German auto maker with “open arms and warm hearts,” and pledged to expand the factory and create another 1,000 manufacturing jobs.
Part of that expansion is now under way, as the company readies production of its X5, the 10th X-series SUV model built in Spartanburg since BMW first broke ground in 1992. Since then, BMW has invested $8 billion in the plant, which employs 9,000 people. It is the company’s largest factory and a manufacturing hub for its SUVs.
With the new expansion, the Spartanburg plant will soon be churning out 450,000 vehicles a year, exporting around twothirds of them. It is a strategy that BMW has followed to base more manufacturing costs in dollars — limiting its exposure to currency swings — and to tap the growing SUV market in the U.S.
BMW last year sold 385,900 vehicles made at its factory in South Carolina. Of those, 87,600 were shipped to China, while another112,900 were sent to Europe. Any new vehicles BMW ships from its U.S. factory to China will be subject to the 40 per cent tariff, making them more expensive than the models that rivals build in Europe and then ship to China. Daimler’s Mercedes-Benz brand sold 340,000 vehicles in the U.S. last year, a mixture of imports and vehicles produced at its plant in Tuscaloosa, Ala. That plant is the global hub for the brand’s GLS, GLE and GLE Coupe models and makes Cclass vehicles for the North American market. Around twothirds of the roughly 300,000 vehicles made in Tuscaloosa are exported around the world. Mercedes wouldn’t provide a regional breakdown on the exports. “This is a favourable situation for us because the products from manufacturers in the U.S. are becoming less competitive,” Lutz Meschke, the finance chief of German auto maker Porsche AG, said in an interview last week.
Mr. Meschke estimated that prices for Porsche’s Macan and Cayenne SUVs could drop as much as 7 per cent in China as a result of lower border taxes, while similar products from BMW and Mercedes-Benz could rise by as much as 15 per cent in the wake of higher duties on their U.S.-built vehicles. BMW and Mercedes declined to comment.
The trade dispute is likely to have a broader impact on the supply chain in the automotive industry.
Even cars built in the U.S. contain a large number of components built elsewhere, and the same goes for cars built in Europe. The Trump administration, in an apparent effort to gain better access for U.S. products, is imposing or threatening tariffs not only against China, but also Europe, Mexico and Canada.
“We have a very strong U.S. business, it’s true, but the delivery network is complex,” said Wolf-Henning Scheider, CEO of ZF Friedrichshafen AG, one of the world’s biggest makers of transmissions, which is based in southern Germany. “We produce transmissions in South Carolina which we ship to European customers, and we have similar transmissions coming out of European plants going in the other direction.”
Big auto makers have built global manufacturing and supply networks that depend on the free flow of goods across borders. These are now threatened by the trade dispute, which could force companies to cut back manufacturing for export and make more vehicles and components in the markets where they are sold.
“The strategy is going to continue to be global, but execution is going to be more and more local,” said Carlos Ghosn, chief executive of the global RenaultNissan-Mitsubishi alliance, which is vying to overtake Volkswagen AG as the world’s biggest car maker by sales.