Angst Vanishes As China Hints At Lower Auto Tariffs.
“China Targets Detroit, Hits Tesla and BMW Instead”
President Trump’s intervention in the China/U.S. trade dispute led to much initial angst amongst auto investors, but this turned around after China President Xi JinPing hinted that a new deal to cut import tariffs on cars might be on the agenda.
Initially, a threat from China to tax U.S. made cars an extra 25 per cent on top of the current 25 per cent levy was quickly perceived to be a bigger hit on German manufacturers than U.S. ones.
“China Targets Detroit, Hits Tesla and BMW Instead” was the Wall Street Journal Heard on the Street column’s headline.
According to IHS Market, BMW and Mercedes import the largest volumes of cars from the U.S. into China with probably 89,000 and 69,000 this year, respectively, and Tesla with 14,000. This included 61,000 BMW X5s, 40,000 Mercedes GLEs and 19,000 Mercedes GLSs.
But a few days later Xi JinPing said China would “significantly lower”
tariffs on auto imports this year and ease restrictions on foreign ownership “soon”.
Investment researcher Evercore ISI switched from talking about a tax on Southern German automakers to calculating how much extra profit they would make.
“This could lead to earnings tailwinds of €3 to €4.5 billion for German manufacturers – 4 to 15 per cent of Group EBIT (earnings before interest and tax),” said Evercore ISI analyst Arndt Ellinghorst.
“We would see this as a major step towards opening the Chinese economy and to easing the very tense trade atmosphere,” Ellinghorst said.
Evercore ISI calculated that BMW’s EBIT would gain between €1.2 billion and €1.75 billion, €1.1 to €1.65 billion for Daimler and between
€750 million and €1.14 billion for VW.
As well as tariffs, China requires foreign carmakers to form joint ventures with local manufacturers and caps their stakes at 50 per cent.
On April 17, China announced it will end foreign ownership caps on local auto companies by 2002, and remove restrictions on new-energy ventures this year.