Ford, GM, Tesla Slump as US-China Trade War Escalates

On August 23, the S&P 500 Index (SPY) opened 0.5% lower as the US-China trade war intensified. CNBC reported that China plans to impose tariffs on $75 billion of US goods. China plans to impose these tariffs in two parts, on September 1 and on December 15.

Auto stocks fall as the US-China trade war escalates

China also plans to resume its 25% tariff on US cars and its 5% tariff on auto parts and components on December 15. This is not unwelcome news for auto companies, as it could impact the demand for their products in China. Unsurprisingly, auto stocks also opened in the red.

General Motors (GM) opened down about 1.3% on the day. Fiat Chrysler Automobiles (FCAU) and Tesla (TSLA) opened down about 0.9% and 0.2%, respectively. Plus, Ferrari (RACE) and Ford (F) opened lower by 0.4% and 0.9%, respectively.

Ford, GM, Tesla Slump as US-China Trade War Escalates

China counters US tariffs

China’s move to impose tariffs and duties is in retaliation to the United States’ tariffs. Earlier this month, the US announced a 10% tariff on $300 billion of Chinese goods. On August 1, President Donald Trump tweeted, “We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing.” On August 13, he delayed the tariffs to December.

CNBC reported today that the Chinese State Council stated, “In response to the measures by the U.S., China was forced to take countermeasures.” The state council added, “The Chinese side hopes that the U.S. will continue to follow the consensus of the Osaka meeting, return to the correct track of consultation and resolve differences, and work hard with China to end the goal of ending economic and trade frictions.”

Aside from the escalating US-China trade war, auto stocks just had a volatile earnings season. General Motors’ (GM) Q2 earnings fell but surpassed Wall Street’s forecast. Ferrari (RACE) reported a robust set of second-quarter results.

However, Ford’s (F) Q2 earnings fell short of Wall Street analysts’ estimate by about 9%. Fiat Chrysler Automobiles’ (FCAU) earnings fell short of analysts’ estimate, and Tesla (TSLA) missed its second-quarter earnings.

The US-China trade war’s impact on automakers

China is an important market for Ford. Although the company is posting a loss in the Chinese markets, it reported an improvement in the second quarter. Ford’s Chinese revenues rose 48% YoY due to higher sales from Lincoln. Also, the sales for its new Territory SUV rose, making it the best-selling Ford SUV in China.

Ford expects its Chinese markets—along with its North American and European markets—to be growth drivers for the company. However, these plans could be impacted as tariffs resume as a result of the escalating US-China trade war.

Notably, General Motors is already affected by the slowdown in the Chinese economy. In the second quarter, the company reported a $48 million operating loss in its International segment due to lower earnings from China.

In the company’s Q2 earnings conference call, GM CEO Mary Barra noted, “GM China headwinds in the quarter include lower volumes, significant pricing pressure, regulatory changes, slower sales of our outgoing models and shifting customer preferences even as we launch new vehicles in Q3 and Q4, we see many of these dynamics continuing. Therefore, we expect equity income in the second half of the year will be generally in line with the first half.

GM, which is already struggling in the Chinese market, could see a possible slowdown in growth in the region.

Tesla and China

Although Tesla currently ships its vehicles to China, it is planning to launch the local production of its Model 3 in China by the end of the year. The company expected the plant’s production process to be cost-effective, producing 150,000 units per year.

This production plant should help Tesla partially offset the impact of tariffs. Perhaps with a local production plant, Tesla could be less impacted by the US-China trade war compared to its peers. To learn more, read Tesla Gigafactory: China Provides Vital Certificate.