by Agnes Lovasz
Shares from European automakers may need to fall further if President Donald Trump considers whether he wants to hit punitive rates on US sales, contributing to factors that are already dragging the industry, such as growth delays in Europe and China and the costly race to develop electrically and self-driving vehicles.
Trump has until mid-May to consider the findings of the Wilbur Ross trade agency investigation into whether imported vehicles in the United States pose a risk to national security. Ross submitted his report last month. Trump still has 15 days to take action if he has to take protective measures
The (SXAP) has fallen by 22% in the past year under pressure from the automotive industry worldwide. Since the beginning of the year, it has been 11% more optimistic about a final breakthrough in Trump's trade negotiations with China
"The entire tariff issue has not yet been fully discounted," said Giorgio Vintani, partner and portfolio manager at Canara Capital Partners, in an interview on March 19. "This is a political decision and it is quite unpredictable."
Volkswagen (OTC :), (DE 🙂 shares have fallen, down 7.7% in the past year; BMW (OTC 🙂 (DE 🙂 shares fell by 16% in the same period.
On the other hand, shares of Peugeot SA (OTC :), (PA :), which also produces Citroën, have won 18% since the end of 2018.
"What the market has told you is that there is no rush to come back in these stocks," Vintani said. "Most people would like to be risk-averse," he said, adding that he currently has no position in automakers. "I'm waiting to see if there is an improvement in the circumstances."
As the US is the number 1 destination for cars built in the European Union – accounting for 29% of the EU's total export value, according to figures from the European Automobile Manufacturers Association (ACEA) – the rate increase would be harmful. Trump wants to support American industry as one of the main themes of his presidency. Last year, a quarter of all US car imports came from the EU, according to ACEA figures.
A specific sore spot for Trump, as well as a recurring theme in his tweets, is the American trade imbalance compared to German cars. In 2018, Germany sent $ 18.65 billion in passenger cars to the US, while the Germans bought only $ 5.8 billion US cars, leaving a gap of $ 12.81 billion, according to the data from ACEA.
German car manufacturers would be most influenced by the questionable, punitive American import tariffs. Based on the share of the US market in their total sales of units last year, derived from data available on their websites, BMW and Daimler (OTC :), (DE 🙂 the Mercedes-Benz brand would be the biggest hit .
In 2018, American BMW deliveries represented 14.3% of the company's global total. The US accounted for 13.7% of Mercedes-Benz's worldwide deliveries last year, while Volkswagen represented 5.6% of the total at & # 39; the world's largest automaker in the United States
If Trump were to impose additional import duties of 25%, German car exports to the US could fall by nearly 50% in the long run, according to the think tank of the German Ifo Institute. These rates would reduce total car transportation from Germany by 7.7% or 18.4 billion s ($ 20.9 billion), the Ifo said in February.
Currently, the Renault of France (PA 🙂 and PSA, the Peugeot Group, do not sell cars in the US. But that can change. PSA plans to increase sales outside Europe by 50% by 2021. Carlos Tavares, PSA's top boss, said in February that the company is considering a US re-entry for its Peugeot brand, but is awaiting the outcome of the tariff negotiations before taking the trigger.
The prospect of US trade taxes simply contributes to the existing headwind for European car manufacturers. Perhaps, however, the most important factor behind the weak price development is the slowdown in their home markets. Earlier this month, the European Central Bank radically lowered its economic growth forecast for the eurozone in 2019 to 1.1% from 1.7% earlier
The newest car manufacturer to sound the alarm was BMW this week, warning that it expects profit before tax to fall by at least 10% this year and it has embarked on an efficiency program of 12 billion euros to reduce the effect of trade problems and offset shift to electric cars.
Since the automotive industry is a cyclical sector, Vintani said, an economic recovery should benefit from this. Value investors may be tempted by these price levels "and take a position if you think the companies can survive this kind of impact," he said. But, he noted, in cyclical sectors, payment and technology stocks in the US offer better opportunities.
