The BMW X2. Picture: BMW
The BMW X2. Picture: BMW

Milan — European car makers’ share rally in 2019 might hit a roadblock as a US probe of vehicle 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 posed a national-security risk, according to a statement on Sunday. 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.

US government officials haven’t given any insights into the findings. At the Munich Security Conference on Saturday, German Chancellor Angela Merkel rejected the idea that her country’s autos pose a threat to the US

Car producers’ and suppliers’ stocks in Europe have gained in 2019 — with the Stoxx 600 automotive index jumping 9.6% — amid optimism that the US-Chinese talks will resolve a dispute hampering the industry worldwide. BMW and Volkswagen 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% 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.

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.

“The risk that tariffs between Europe and the US will come is rather high — I would say slightly more than 50%,” Juergen Pieper, an analyst at Frankfurt-based Bankhaus Metzler, said in an e-mail. “Trump seems to have a real problem with German cars.”

The EU estimated in June that a 25% tariff would add about €10,000 to the sticker price of a car made in the bloc and sold in the US, and would cut US purchases of vehicles and parts in half. The Munich-based IFO’s Center for International Economics calculates that an import fee of that size would cut German car sales to the US by almost 50%, or about €17bn, eroding total vehicle exports by 7.7%.

Daimler’s Mercedes-Benz brand and BMW, the world’s two biggest makers of luxury cars, and Volkswagen, the largest vehicle producer globally, have the most at stake from any US trade penalties, even as they’ve reduced the need to bring in vehicles by building US plants. The US is the second-largest market for both Mercedes-Benz Cars and BMW.

France’s Renault and PSA Group, the owner of the Peugeot and Citroen marques, do not sell vehicles in the US. PSA shares outperformed the European automotive benchmark in the past 12 months, while among car makers with a US presence, Daimler has posted the gauge’s worst decline.

Car and component exports from the EU to the US totaled $62.5bn in 2017 while imports amounted to $17.7bn, according to a February 15 note by Bernd Weidensteiner, an economist at Commerzbank. Germany accounted for $30.5bn of the outbound figure, though only $8.5b of purchases from the US

Even as US imports have declined in recent years as manufacturers established significant US production, the German surplus of $22bn is “a particular thorn in the side of President Trump”, he said.