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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n Germany\u2019s top three carmakers are set to have more than \u20ac10bn wiped off from their cash flows this year as US tariff costs add pressure to an industry already battling sluggish volumes and an influx of Chinese electric vehicles.<\/p>\n The car industry has been one of the hardest hit by Donald Trump\u2019s trade war after the US president imposed 25 per cent tariffs on imports of foreign-made vehicles. <\/p>\n Analysts expect carmakers\u2019 cash flows generated from their automotive business to be squeezed. They are likely to fall from \u20ac9.4bn last year to \u20ac3bn at Mercedes-Benz; from \u20ac7.1bn to \u20ac3.5bn at Volkswagen; and \u20ac4.8bn to \u20ac4.4bn for BMW, according to data from Visible Alpha.<\/p>\n The position could deteriorate further as analysts adjust their forecasts to reflect VW\u2019s cut in its automotive net cash flow guidance for the year to between \u20ac1bn and \u20ac3bn, from its previous range of \u20ac2bn to \u20ac5bn. <\/p>\n The tariff fallout has not been fully reflected in second-quarter results, because some carmakers stocked up and worked their way through their pre-tariff inventory while awaiting the outcome of trade talks. <\/p>\n However, higher tariffs will mean rising costs for exporting to the US, procurement of parts as well as supply chain adjustments, which would put pressure on cash flows.<\/p>\n \u201cThe question in my mind is: do we take comfort from the fact that the tariff impact in the second quarter is less than we first feared or is this a false sense of security?\u201d said Michael Tyndall, senior global autos analyst at HSBC.<\/p>\n Volkswagen, Mercedes-Benz and BMW are already paying a 27.5 per cent tariff for many shipments to the US from countries such as Germany and Mexico.<\/p>\n On Friday, VW revealed a \u20ac1.3bn tariff hit in the second quarter and predicted the burden would increase to several billion euros if the car tariffs were not lowered. It had negative net automotive cash flow of \u20ac523mn in the second quarter.<\/p>\n General Motors surprised investors when it said tariff costs were likely to be bigger in the third quarter than the $1.1bn reported during April to June, as it warned of up to $5bn in annual impact.\u00a0<\/p>\n Analysts expect GM\u2019s adjusted free cash flow for its car business for the year to halve to $7.7bn from $14bn.<\/p>\n Stellantis has said it would take a \u20ac300mn hit from Trump\u2019s tariffs during the first half, but conceded the impact in the second half would be bigger as it expects up to \u20ac1.5bn by the end of the year. <\/p>\n Tesla faced $300mn in additional tariff-related costs in the second quarter and warned this figure would increase through the year. <\/p>\n In May, BMW bullishly predicted that US tariffs would be lowered from this month. While Washington has not yet reduced the levies, people close to the talks have told the Financial Times that the EU and US are closing in on a trade deal that would set the tariff on most European imports at 15 per cent. It remains unclear whether cars will be included. <\/p>\n However, for the carmakers, costs are already rising as suppliers, which have slimmer profit margins, have swiftly managed to pass on higher tariffs not just on foreign-sourced components but also on materials such as aluminium and steel.<\/p>\n Stellantis said it would take a \u20ac300mn hit from Trump\u2019s tariffs in the first half, with a bigger impact in the second half<\/span> \u00a9 Damien Meyer\/AFP via Getty Images<\/span><\/p>\n Among suppliers, Swedish seatbelt and airbag maker Autoliv raised its annual guidance on sales to reflect the tariff payments following a record second quarter. <\/p>\n \u201cWe successfully recovered approximately 80 per cent of the tariff costs during the second quarter, and expect to recover most of the remaining portion later this year,\u201d its chief executive Mikael Bratt said.<\/p>\n Thomas Besson, head of autos research at Kepler Cheuvreux, said European automakers have accumulated rich cash piles following the sales surge and higher vehicle prices the industry enjoyed after the Covid-19 semiconductor crisis. At VW, Mercedes-Benz and BMW alone, their industrial liquidity is over \u20ac100bn, meaning the \u20ac10bn hit can be absorbed in the short term.<\/p>\n Nevertheless, pressure on their cash positions and profit margins comes at a time when companies such as VW face the need to restructure, in order to bring down their excess capacity at their factories and fix their cost structure to compete against BYD and other Chinese rivals.<\/p>\n \u201cSome companies are still buying back shares when maybe they shouldn\u2019t. They are pretending that everything is fine when everything is not fine,\u201d Besson said. \u201cThey are leveraging this silver lining of a strong cash position but they might be consuming it too fast rather than using it more wisely.\u201d<\/p>\n VW revealed a \u20ac1.3bn tariff hit in the second quarter<\/span> \u00a9 Paul Bersebach\/MediaNews Group\/Orange County Register via Getty Images<\/span><\/p>\n Mark Wakefield, global automotive market lead at AlixPartners, said carmakers were likely to pass on 80 per cent of the tariff costs, which he estimated would total $30bn on the basis that trade deals for lower levies would be reached with Europe, Mexico and other countries.<\/p>\n As making cars more expensive for American consumers would be politically sensitive, he said companies may choose to raise prices more discreetly by reducing sales discounts and changing the financing terms for leasing.<\/p>\n While the tariff costs may be mitigated by raising car prices, Wakefield explained carmakers would still suffer \u201ccash erosion in a different way from lower volumes\u201d if consumer demand fell away with the rise in vehicles prices for potential buyers.<\/p>\n","protected":false},"excerpt":{"rendered":" Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Germany\u2019s top three carmakers are set to have more than \u20ac10bn wiped off from their cash flows this year as US tariff costs add pressure to an industry already battling sluggish volumes and an influx<\/p>\n","protected":false},"author":1,"featured_media":12465,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[4788,6069,6067,5041,6068,6066,70,620,72,81],"class_list":{"0":"post-12464","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-10bn","9":"tag-bite","10":"tag-carmakers","11":"tag-cash","12":"tag-flow","13":"tag-german","14":"tag-hit","15":"tag-set","16":"tag-tariffs","17":"tag-trump"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/12464","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12464"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/12464\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/12465"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12464"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12464"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12464"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}