German cars are most exposed to Chinese counter-tariffs

The European Commission’s proposal to impose additional tariffs of up to 38.1 per cent on Chinese-made electric vehicles (EVs) has raised concerns about potential retaliatory measures from China. Such retaliation could significantly impact European carmakers, particularly German manufacturers who have a substantial market presence in China.

Industry executives have expressed apprehension about these potential tariffs, fearing that counter-tariffs or other punitive measures could undermine the competitiveness of their vehicles in the Chinese market. This concern is especially acute given that European automakers are already struggling to keep pace with the growing number of domestic competitors in China’s EV sector.

German carmakers are particularly vulnerable to potential counter-measures, as trade data reveals that nearly one-third of their 2023 sales were generated in China. While the majority of vehicles sold in China are manufactured locally, many high-end models are still imported from Germany, exposing these premium segments to potential tariffs.

Porsche, majority-owned by Volkswagen, stands out as the most exposed among German automakers. The luxury carmaker has no production facilities in China and imports all vehicles sold there, which account for 25 per cent of its global sales.

The impact on German carmakers varies in ways, for instance:

1. Volkswagen Group, Porsche, BMW, and Mercedes-Benz collectively exported less than 5 per cent of the 4.8 million vehicles delivered to Chinese customers in 2023.

2. Reports suggest that a potential Chinese counter-tariff might apply to cars with engines of 2.5 litres or larger. The impact of such a measure would vary across brands:

– Volkswagen: Approximately one per cent of sales affected

– BMW: Around 2 per cent of sales affected

– Mercedes: About 4 per cent of sales affected

– Porsche: Up to 17 per cent of sales affected

3. Despite the relatively low percentage of affected vehicles, the potential impact on operating profits could be significant. Stifel Research estimates a negative impact on EBIT (Earnings Before Interest and Taxes) ranging from 4 per cent to 10 per cent for these German carmakers, as exported vehicles tend to be higher-end models with substantial profit margins.

Looking at individual manufacturers such as:

Porsche produces the vast majority of its cars in Germany, despite 25 per cent of sales coming from China. It may have some ability to raise prices due to its luxury branding, potentially offsetting some impact of counter-tariffs. It has experienced a 15 per cent decline in Chinese deliveries in 2023, with a further 24 per cent drop in Q1 2024. Porsche is building an R&D site in Shanghai and has introduced a China-specific version of its Taycan model.

Volkswagen has the lowest exposure to counter-tariffs, with only 2.5 per cent of cars sold in China made in Germany. It sold over 3.2 million cars in China in 2023, with 3.06 million locally produced. Audi, VW’s premium brand, has a slightly higher share of imported vehicles at just over 8 per cent of local sales.

Mercedes-Benz’s largest market is in China accounting for about 36 per cent of unit sales (737,000 in 2023). Approximately 80 per cent of cars sold in China in 2023 were locally made. Imports top-end models like the S-Class, GLC, G-Class, and Maybach from Europe and the USA.

BMW generates nearly a third of vehicle sales in China, totalling just over 826,000 units. About 13 per cent of its Chinese sales come from imported cars like the i4, 7 Series, and 5 Series from Germany. BMW also plans to produce its new ‘Neue Klasse’ model series locally from 2026 onwards.

Other European automakers also have varying degrees of exposure:

– Volvo Car (majority-owned by China’s Geely): Generates 25 per cent of unit sales in China, but only about 10 per cent of profits. Imported vehicles make up about 4 per cent of its Chinese sales.

– Stellantis has relatively low exposure to China, except for its recent investment in Chinese EV maker Leapmotor.

– Ferrari: All its sales in China are imports, but these comprise just 9 per cent of global sales.

– Renault: Has low exposure to China, operating through joint ventures with Jiangling Motors and Brilliance Auto. Its Dacia Spring EV is manufactured in China by local partner Dongfeng.

The potential for retaliatory tariffs highlights the complex interplay between trade policies and the global automotive industry. European carmakers, particularly those with significant stakes in the Chinese market, face a challenging landscape as they navigate these potential trade tensions while striving to maintain their competitiveness in the world’s largest automotive market.