BMW issued a profit warning for the first time in a decade. BMW is the latest of several Auto and auto-supply companies lowering its guidance. All of them cite the trade war between US and China as the main reason. The entire auto-sector has had a bad year due to tariffs and other overhangs.
As we wrote yesterday BMW (BMW GY) issued a profit warning, lower its numbers, especially its margins. The Munich based company cited several reasons for the lowering of numbers;
- New stricter emissions tests for Cars in Europe (WLTP)
- Continued International trade conflicts
- Increased goodwill and warranty provisions as the company has been forced to do recalls on diesel-powered cars.
This is the first time in a decade BMW has had to issue a profit warning. Its two main German peers Volkswagen (VOW GY) and Daimler (DAI GY) have both also mentioned softening to their guidance, partially due to implementation of the new European emissions regulations.
The main culprit though is the increased trade-war/tariffs between US and China. BMW CEO said;
Continuing international trade conflicts are aggravating the market situation, feeding uncertainty and distorting demand”
In 2017, BMW produced almost 400,000 vehicles in its South Carolina based plant. 70 percent of the production went for export, with China being the biggest market. In June, Daimler issued a profit warning blaming the same trade-war factors.
“The decisive factor is that, at Mercedes-Benz Cars, fewer than expected SUV sales and higher than expected costs – not completely passed on to the customers – must be assumed because of increased import tariffs for US vehicles into the Chinese market. This effect cannot be fully compensated by the reallocation of vehicles to other markets.
Earlier today in an interview with Bloomberg, Ford (F US) said that the tariffs have taken $1bn from its profits. Bloomberg quotes;
“The metals tariffs took about $1 billion in profit from us — and the irony is we source most of that in the U.S. today anyways,” Hackett said in an interview on Bloomberg Television. “If it goes on longer, there will be more damage.”
These tariffs have affected the entire auto value chain. As we wrote earlier Continental AG (CON GY) issued a profit warning in August, blaming Chinese tariffs. Another auto-supplier, BorgWarner (BWA US), lowered its guidance last week due to Chinese tariffs.
Earlier this year the Chinese decided to lower tariffs on non US produced cars. They further lowered these tariffs today as latest response to US government actions. Business Insider sites;
China on Wednesday took a major backward step in its trade war with the US, announcing it would cut import tariffs on numerous non-American goods.
The cuts, most likely designed to protect Chinese consumers against the escalating conflict with the Trump administration, go into effect on November 1
It appears, the companies with large production facilities in the US will suffer most from a trade-war. Beyond large US OEMs such as GM (GM US), Ford (F US) and Fiat (FCAU US), companies with biggest risk to US-China trade war are US based auto-suppliers. Below is a list of these companies: