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BMW, Daimler to Bear the Burden of Trump’s Trade War in China

These translations are done via Google Translate

July 30, 2018, by Bloomberg News

BMW AG and Daimler AG are facing more pain in China after higher tariffs on U.S.-imported cars force price hikes and consumers hold back on their next purchase.

BMW, which like Daimler AG ships U.S.-made sport utility vehicles to China, said on Sunday it will join Tesla Inc. in raising prices in the Asian country. The steeper charges are a result of China’s decision to boost tariffs to 40 percent on July 6, part of a tit-for-tat trade war with the U.S. China almost simultaneously cut import duties for cars from everywhere else, creating whiplash for manufacturers as well as consumers.

U.S. carmakers without China plants (Tesla) or those making U.S.-China shipments as well as importing a significant portion of their sales (Daimler, BMW, Fiat) are feeling the most pain from the new landscape. As a result, carmakers have stepped up efforts make more cars locally. Tesla is looking to invest more in the world’s biggest auto market with a planned a factory near Shanghai. BMW is angling for majority control of its Chinese auto venture, while Daimler has said they’d consider assembly of cars from knock-down kits, a common practice to avoid tariffs.

If the trade war persists, carmakers will change where they make vehicles, said John Zeng, Asia managing director of forecaster LMC Automotive, noting a BMW assembly facility in Thailand. “If BMW and Mercedes see the price raise will affect their sales, they will change the manufacturing location.”

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On Sunday, BMW said it would increase suggested retail prices for X5 and X6 models, built in Spartanburg, South Carolina, by 4 percent to 7 percent in China. Tesla raised prices for its Model S and Model X earlier this month. With the higher prices, an X5 sells for about the equivalent of $107,000 in China, according to the company’s Chinese website.

Daimler, importing cars like the GLE SUV from its Tuscaloosa plant in Alabama to China, wasn’t immediately able to comment. Ford Motor Co., maker of the Lincoln luxury vehicles, reiterated on Monday that it has no current plans to increase the sticker prices on its import line-up in China.

The tariff imbalances, coming suddenly after decades of the industry becoming more global last month prompted Daimler to warn of lower profits, moving first among major carmakers. The company last week reported a 30 percent slump in earnings, led by losses at its Mercedes-Benz Cars unit. Like Fiat Chrysler, it partly blamed consumers in China asking for price cuts even before a reduction in import duties to 15 percent from 25 percent from July 1.

Fiat, maker of the Jeep and Maserati brands, said sales in Asia contracted during the second quarter, even as it unveiled a the Jeep Grand Commander, built in China specifically for that market. The downturn, even if temporary, prompted the Italian-American company to cut its annual financial target. BMW, who also counts China as its biggest market, is due to report second-quarter earnings on Thursday.

“We believe 80 percent of the shortfall in demand is related to timing, consumer confusion, lower prices for sedans and higher charges for premium SUVs,” Arndt Ellinghorst, a London-based analyst with Evercore ISI said in a note. If tariffs were removed and more clarity emerged on pricing, China sales could bounce back very quickly, he said.

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