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Bloomberg
European carmakers’ share rally this year might hit a roadblock as a US probe of auto imports raises the potential of new tariffs, with underperforming German manufacturers particularly at risk.
US Commerce Secretary Wilbur Ross submitted a report to President Donald Trump on whether vehicles made abroad pose a national-security risk, according to a statement. Trump will have 90 days for any response and, if he says he’ll move forward with measures under Department of Commerce recommendations, another 15 days to act. While government officials haven’t outlined any conclusions, the announcement sent automotive stocks down on Monday in one of the two worst segment performance on Europe’s main share gauge.
Car producers’ and suppliers’ shares in Europe have risen in 2019 — though the slide on Monday narrowed the Stoxx 600 automotive index’s year-to-date gain to 8.8 percent — amid optimism that the US-Chinese talks will resolve a dispute hampering the industry worldwide. BMW AG and Volkswagen AG have lagged behind as the German companies grapple with weakening demand in their home region and China.
Even with this year’s bounce, the industry still trades at a depressed valuation, with a price-to-earnings ratio of 6.6 that’s by far the lowest among all the sectors in Europe. And the automotive gauge is down 24 percent from a year ago. That’s a little before Trump began tweeting threats to tax German makers’ vehicles, though he’d complained since mid-2017 about the cars’ presence on US streets. At the Munich Security Conference, German Chancellor Angela Merkel rejected the idea that her country’s autos pose a security risk to the US.
Volkswagen dropped 1.5 percent as of 10:50 am in Frankfurt, Daimler AG fell 0.9 percent and BMW was down 0.5 percent. Among component suppliers, tiremaker Pirelli & C. slid 1.4% while Faurecia declined 1.1 percent.
While Trump and European Commission President Jean-Claude Juncker agreed in July to hold off on new tariffs during discussions to resolve an American-European dispute, the US leader’s repeated tweets may indicate he’s primed to add import fees especially targeted at cars from the bloc, according to analysts.