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Industry Spotlight

Tesla, Ford, BMW: which share price is most affected by trade war tariffs?

Automakers, and their share prices, are set to be hit by the trade war between China and the US, with tariffs escalating this August. Ford and BMW look set to suffer the most, while Tesla, courting China, has been graced with an exemption on a separate tax to offset the cost.

Beijing announced on 23 August that it would resume auto tariffs that were paused in April, to retaliate against Trump’s bid to slap an extra 10% on $300 billion worth of Chinese goods – a preposition he made this July.

The tariffs will be effective from 15 December, and US cars will be taxed an extra 25%, while auto components will receive a 5% tax.

25%

Extra tax on US cars

On the day of the announcement, Ford’s shares declined 3% closing the session at $8.77, while Tesla fell 5% to $211.40. BMW – which, due to its SUV production in the US, will also be hit by the tariffs – lost 3.1%, settling at €58.70.

 

Tesla pops on exemption from a different tariff 

There’s hope for Elon Musk’s firm, as China soon announced it will exempt electric vehicles from a separate 10% purchase tax on a new range of vehicles set to be produced in China – a benefit usually reserved for Chinese companies.

Model 3, Model S and Model X are among the 16 makes mentioned in the statement issued by the Chinese Ministry of Industry and Information Technology.

After the initial drop, the company’s shares rose by 4% in the morning after the exception was announced.

News of Tesla’s exemption arrived days before the electric carmaker revealed that it would raise prices for some vehicles in China, as the yuan trades at its weakest levels in over a decade. 

The company has said it is inflating the prices in China to offset losses from the trade war and yuan devaluation. The models that will receive a price bump include the Model X sport utility vehicle (SUV) and variants of its Model 3 make.

 

BMW falls

The trade war has seriously impacted the German producer, which supports near 80 thousand jobs in South Carolina. It suffered a €300m loss in 2018 as a result of increasing tensions between the US and China, and has forecast a potential impact of €600m after a full year of tensions.

It currently produces its X1 and X3 SUV in China, and ships the X5 in ready-to-assemble kits to Thailand to avoid tariffs on US imports. 

A spokesperson said in an emailed statement they don’t “speculate on the potential impact of individual developments” in the trade war.

“The BMW Group is committed to free trade worldwide: our company has a global production network and a global sales market. We also take advantage of purchasing markets around the world. Barrier-free access to markets is therefore a key factor not only for our business model, but also for growth, welfare and employment throughout the global economy,” it added.

A key thing to watch now is whether it will move further production away from the US to avoid tariffs, and cause US job losses in the process.

 

Ford stays steady

Ford expects China to become the biggest market for its luxury Lincoln model in the next few years, surpassing the US. It’s why it plans to transfer the production of the model to China, in order to avoid tariffs.

“We see China as Ground Zero for Lincoln given the size of the market and how well the brand has been received,” Chief Financial Officer Bob Shanks said at a conference in May.

Three of Ford’s models - the Ford Explorer SUV, Lincoln MKC or Corsair crossovers and Lincoln Continental sedan - are in the top 10 American vehicles sold in China.

The firm’s share price was moderately hit by the announcement, but has since gone on somewhat of a charge by Ford standards, gaining 4.5% through week ending 30 August. Gains have continued this week too.

 

The consequences

President Trump seemingly remains unfazed, blaming the fear of recession, the Federal Reserve, and the “bad management” of struggling companies for recent losses.

Industry group Here for America, however, said the tariffs imposed last year halved US exports of finished vehicles in China, jeopardising an important market.

“Americans are exporting more vehicles to China than China exports to the US,” Here for America said in a statement, “If those tariffs go back into effect and remain in effect, American jobs are at risk. There’s no question about that."

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