“all bets are off if China blocks powerful car imports from Europe”
Investors have been a bit concerned by Germany’s recent erratic car sales, but they will running for the exits if rumors China may curb imports of European high-powered cars turn out to be true.
This would cut a swathe through the profits of German luxury car manufacturers BMW, Mercedes and Volkswagen’s Audi and Porsche.
According to reports in the French daily newspaper Les Echos, China is thinking about imposing import-duties on cars with engines bigger than two liters built in Europe. This would be an escalation of the current spat between the European Union (E.U.) and China after the E.U. imposed higher tariffs on Chinese solar panels and Beijing responded with higher taxes on European wine.
If that rumor turns out to be false, investors can relax if they were worried about sales plummeting in Germany, Europe’s biggest market, says Deutsche Bank.
“Perception of the German car market over the last three months has been nothing short of schizophrenic. March was commonly perceived as a disaster, April a strong rebound, and latest data shows May was once again dreadful. Alas the truth is much more mundane,” Deutsche Bank said in a report.
The bank said that if you adjust the data to account for holidays, sales look relatively steady, and it retained its forecast of a four per cent decline for the year.
“It appears everyone has gotten a little carried away about Germany, in both directions, of late. The underlying trend looks much more stable,” Deutsche Bank said.
But all bets are off if China blocks powerful car imports from Europe.
According to investment bank Morgan Stanley in a report late last year, German profits from China are set to decline anyway, but from a very high level.
China, if there are no curbs, is expected to provide more than a third of global profits for Audi, BMW and Mercedes by 2015, down from the current average of just over 40 per cent., Morgan Stanley said.
If import curbs are introduced, that will be bad news for sales of top-of-the-range Audi A8s, BMW 7 series and Mercedes S class limousines, currently imported from Germany and with fat profit margins.
Neil Winton – June 12, 2013
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