U.S. Tariff On Mexico Hits FCA, BMW And VW Stock Prices.
“We see FCA, Renault-Nissan and VW as the most exposed manufacturers in Europe”
European auto makers face mounting losses if the U.S. decision to raise tariffs on Mexican exports by 5% isn’t settled soon, and their stock prices took a beating Friday with the Stoxx Europe 600 index losing almost 2.5%.
The U.S. said from June 10, there will be a 5% tariff on all incoming goods from Mexico and will increase until the illegal immigration is remedied. Tariffs will rise by 5% each month until they reach 25% on October 1.
In morning trading Friday in Europe Fiat Chrysler Automobiles was the hardest hit, off nearly 5%, while BMW fell nearly 2% and Volkswagen just over 2%.
“We see FCA, Renault-Nissan and VW as the most exposed manufacturers in Europe. Clearly this announcement has potential implications for the proposed FCA-Renault merger,” said Citi Research analyst Angus Tweedie.
“A 5% tariff sees a 12% EBIT (earnings before interest and tax) at FCA and 3% at VW. With 13% of global production coming from Mexico, FCA is the European automakers most exposed to import tariffs from Mexico into the U.S,” Tweedie said.
“Volkswagen also has material production facilities in Mexico – 3% of global production – but its scale means it is better insulated from the risk and we estimate a 3% potential impact on EBIT from the tariff, he said.
Tweedie said assuming the tariff does increase all the way to 25%, the potential profit hit at FCA would reach to 58% and to 15% at VW, assuming no relocation and absorption of 100% of the costs.
“Clearly this represents a worst case scenario and we could expect management teams to undertake significant restructuring to avoid such an outcome,” he said.
Investment researcher Evercore ISI said for the Americans, 18% of GM’s sales are built in Mexico and 17% for Ford. VW produces about 35% of its U.S. sales in Mexico, and BMW nearly 20%.
Citi Research’s Tweedie said the Renault-Nissan alliance is heavily exposed in Mexico too. A 5% tariff would cut the same amount from Renault’s 2019 net income, and a 25% toll would reduce net income by 22%. For Renault, Mexico accounts for 1% of global output, and 14% at Nissan.