Porsche and Mercedes Hit Hard by New Trump Tariffs

Porsche AG and Mercedes-Benz Group AG are facing significant financial challenges due to new tariffs imposed by former President Donald Trump. These tariffs, which will take effect on April 3, include an additional 25% duty on imported vehicles, potentially costing both companies around €3.4 billion (approximately $3.7 billion).

Impact on Earnings

These tariffs could undermine about 25% of the projected operating earnings of Porsche and Mercedes for the year 2026. To cope with the new costs, manufacturers may be compelled to increase their prices or relocate some of their production facilities to the United States.

Threat to European Automakers

The new tariffs pose a serious threat to the European automotive industry, which heavily relies on exports to the profitable US market. German automakers, particularly Porsche and Mercedes, are most vulnerable as they export more vehicles to the US than any other nation. This includes many of their high-margin models, such as the Porsche 911 sports car and Mercedes' S-Class luxury sedan.

As a result of this news, the stock prices for Porsche and Mercedes have declined sharply, with drops of up to 5.7% in Frankfurt. Other major brands like BMW and Volkswagen have also seen significant declines.

Concerns About Trade Relations

The VDA, Germany’s automobile lobby, has labeled the new tariffs as detrimental to free trade and is urging the EU to negotiate with the US to reach an agreement. The tariffs will not only affect main manufacturers but could also impact parts suppliers like Robert Bosch GmbH and Continental AG.

US Production Factors

Many German automakers have production facilities in the US, producing both for local consumers and exports. However, as the European Union considers its response, any escalation in this trade dispute could further harm an industry dealing with increased costs and slowing demand.

This year, the MSCI ACWI Automobiles Index has lost approximately $364 billion. Meanwhile, European carmakers have seen a market capitalization decline of about €43 billion since February, as trade concerns have overshadowed the positive economic outlooks in Germany.

Porsche's Specific Challenges

Porsche, in particular, is struggling with decreased sales in China, making it vulnerable to these tariffs. While the company has witnessed steady growth in the US over the past 15 years—now its biggest market—its US dealers rely entirely on imports, since Porsche doesn’t have a production facility in the country.

Impacts on the Broader Auto Industry

Other companies like Stellantis NV have established US production networks and will likely be less affected, while Renault SA primarily sells within Europe. BMW has already estimated that trade tensions could cost it around €1 billion this year, a figure that does not account for the new tariffs.

Although auto executives have long fought against tariffs, the industry remains in a wait-and-see approach as discussions continue. Any implementation of these tariffs presents a heavy burden for manufacturers and could have serious implications for consumers, especially in North America.

The Bigger Picture

The current situation underscores the delicate nature of global supply chains in the auto industry. As executives express concern over the far-reaching consequences of tariffs, it becomes clear that the repercussions may extend beyond companies, affecting consumers and market dynamics.

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