• Privatisation tweet

    A probe into a tweet by Tesla chairperson and CEO Elon Musk may open pandora's box.

  • State Capture Inquiry

    Nedbank says ex-Mining Minister Mosebenzi Zwane sought to keep Gupta accounts open.

  • Tighter rules

    'Corporate scandals, rumours and innuendo' has prompted the JSE to plan new listing rules.

Loading...

Trade war is giving BMW, Ford and Tesla a whiplash in China

Jul 02 2018 06:45
Bloomberg News

For BMW, Tesla and other global automakers whose future is ever-more dependent on China’s burgeoning market, any gains from lower import tariffs this week will likely be short-lived - thanks to President Donald Trump’s trade war.

After decades of pleading for easier access to the world’s biggest car market, manufacturers finally saw duties on overseas imports almost halved to 15% on Sunday. But the reprieve for producers of those models - if they are built in the US - is set to end in five days, when a retaliatory 25% levy makes them more expensive.

Trump’s tit-for-tat trade squabble with China threatens to undo years of lobbying by carmakers and drag Europe’s leading luxury brands into the fray because of decisions that were made when global manufacturing and exporting were buzzwords. Now, the uncertain implications of a tariff whiplash are unnerving dealers and consumers in a country where a record 24 million vehicles were sold last year.

“It is a nightmare to have the 25% additional duty,” said Wang Rongzhen, deputy general manager and an investor in Yan’an Jinchi Feike Auto Sales and Service. The Yan’an, Shaanxi-based dealership imports models such as Fiat Chrysler Automobiles’ Jeep from the US.

At Shanghai Aote Hung Car Sales, higher tariffs would just be another headache for sales manager Liu Yuanyuan, who says she’s struggling to shift stock as consumers anticipate the typical summer clearance discounts. Her dealership imports models including those from Mercedes Benz, Buick and Jaguar Land Rover.

"Most of the clients are waiting," Liu said. "After the trade war issue, many imported vehicles like Mercedes-Benz or BMW, especially the BMW X4, X5 and X6 manufactured in US are being impacted. We are advertising that clients can buy cars at promised prices before July 6, but there are no guarantees afterward."

Unless President Trump backs down, on July 6 the US will impose tariffs on $34bn of Chinese imports, many of them parts used in products such as marine engines and power turbines. China will impose countervailing levies the same day - including on US-manufactured cars. The auto tariffs will wipe out the July 1 reduction to 15% from 25% on all foreign car imports.

China’s retaliatory tariffs couldn’t have come at a worse time for foreign luxury-car makers. The yuan, which last month had its steepest two-day decline since the 2015 devaluation, is already making imported vehicles more expensive for local buyers. Chinese equities have entered a bear market, further eroding domestic buying power.

“US carmakers may need to brace for seeing their market share encroached as consumers increasingly favour domestic brands,” said Liu Yuanchun, a professor at the National Academy of Development and Strategy at Beijing-based Renmin University of China.

Retaliation 

The additional levies could trigger even more retaliatory measures. Trump last month instructed trade officials to identify $200bn in Chinese imports for additional tariffs of 10%, and said the US would impose duties on another $200bn if Beijing retaliates. China vowed to hit back.

Of China’s $51bn of vehicle imports in 2017, about $13.5bn came from North America, including sales of models made there by non-US manufacturers like BMW. China imported 280 208 vehicles, or 10% of total imported cars, from the US last year, according to China’s Passenger Car Association.

Some US automakers that preemptively lowered prices in China are now cornered. A day after China announced cutting auto-import tariffs in May, Tesla lowered prices by about 6%. That means the Model S sedan would cost between 710 000 yuan ($107 000) and 1.23m yuan.

Andy Wu, who works at a trading company in Beijing, has been looking at buying a Tesla but now has second thoughts even after the recent discounts.

"I want to choose some accessories and customize some parts, and they don’t really have a vehicle the way I wanted that’s already cleared customs before the new tariff gets in,” said the 33-year-old. “I’m going to wait for a while and see where this is going."

"Why would I pay 25% more but not get an upgrade in quality or a fancier brand?" Wu said. "If it’s bumped up to over 800 000 yuan, why not buy a Porsche?”

Wang, the manager at Jinchi Feike, said carmakers may be reluctant to reverse the price cuts after July 6 because they will find it more difficult to compete with European brands.

High repair cost 

Even US automakers that assemble vehicles in China, such as General Motors and Ford, could be hurt by the July 6 tariff out of concern their cars will become more expensive to repair, he said.

In an emailed statement, Ford said it’s maintaining price cuts on imported Ford and Lincoln models announced in May. “It’s essential that governments work together to lower, not raise, barriers to trade.”

GM said it "has the philosophy to build where we sell. Virtually all the vehicles we sell in China are built in China, and virtually all parts are sourced locally."

Tesla declined to comment. BMW, Fiat Chrysler and Mercedes-Benz’s owner Daimler AG didn’t respond to emails seeking comment outside business hours. China’s finance ministry didn’t respond to a faxed request for comment on Sunday.

Among foreign carmakers, Tesla is particularly vulnerable to an increase in Chinese tariffs. Unlike GM, Ford, BMW and Daimler, the Palo Alto, California-based company has no manufacturing plant in China. Tesla has been working with Shanghai’s government since last year to explore assembling cars in China, but has yet to reach a definitive agreement.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Follow Fin24 on Twitter and Facebook. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

ford  |  tesla  |  bmw  |  china  |  us  |  trump tariffs  |  car industry  |  china tariff
NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What do you think of President Cyril Ramaphosa's economic stimulus plan?

Previous results · Suggest a vote

Loading...