Daimler cuts profit forecast; BMW considers strategy

Daimler's revised forecast came on the same day as reports that German automakers had backed a proposal that the European Union drop tariffs on vehicles to defuse trade tensions.
Daimler's revised forecast came on the same day as reports that German automakers had backed a proposal that the European Union drop tariffs on vehicles to defuse trade tensions. PHOTO: REUTERS

FRANKFURT • Germany's Daimler cut its profit forecast for this year and BMW said it was looking at "strategic options" because of a potential trade war between China and the United States, sparking fears of a wave of earnings downgrades in the car industry.

Daimler said late on Wednesday that import tariffs on cars exported from the US to China would hurt sales of its Mercedes-Benz cars, resulting in slightly lower earnings before interest and taxes (Ebit) this year.

The luxury car maker, one of the biggest global companies to cut its guidance and blame trade tensions, previously saw its Ebit this year 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," said Morgan Stanley analysts.

German rival BMW, which also exports sport utility vehicles (SUVs) from the US to China and Europe, reaffirmed its profit forecasts for this year, but said these depended on worldwide political conditions remaining largely unchanged.

"Within the context of the current discussion concerning additional tariffs on international trade, the company is evaluating various scenarios and possible strategic options," it said in a statement yesterday, without elaborating.

Slower sales of SUVs from the Mercedes-Benz plant in Alabama to China will result in a hit of around €250 million (S$393 million), said Evercore ISI analysts.

Daimler's profit warning comes as US President Donald Trump is proposing to impose tariffs on imported vehicles on the grounds that trade imbalances on many products threaten American national security.

He is separately threatening to impose tariffs on up to US$200 billion (S$272 billion) of Chinese goods. China has warned that it will retaliate with levies on US products, potentially including the Mercedes-Benz SUVs shipped to China from Alabama.

While the US and China have not yet imposed new tariffs, Daimler said it was expecting 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.

Daimler's revised forecast came on the same day as reports that German automakers had backed a proposal that the European Union drop tariffs on vehicles to defuse trade tensions.

Beijing's proposed 25 per cent tax on American car factory exports will hit nearly 270,000 vehicles, with German carmakers accounting for US$7 billion of the US$11 billion total tax.

BMW, the largest vehicle exporter from the US by value, has its largest factory in Spartanburg, South Carolina, and faces a US$965 million impact from tariffs, with Daimler exposed to a US$765 million hit, Evercore ISI analysts have said.

Around 18 per cent of all BMWs sold in China were exported from the US last year, and the carmaker has warned that a further escalation of the trade row "would be harmful for all stakeholders".

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 22, 2018, with the headline 'Daimler cuts profit forecast; BMW considers strategy'. Print Edition | Subscribe