European auto stocks fall on uncertainty over China's tariff response

By Danilo Masoni

MILAN (Reuters) -Shares of some of Europe's biggest carmakers fell further on Thursday on uncertainty over how China might respond to the EU's new tariffs on imported Chinese electric vehicles to combat what Brussels sees as excessive subsidies from Beijing.

Chinese countermeasures could target autos directly, which raises the risk for German luxury carmakers, and could even take aim at other sectors like France's cognac industry, analysts said.

"The risk is that China could also take action that would particularly hit the German OEMs who are exporting to China," said Stifel analyst Daniel Schwarz in Frankfurt.

Some investors, however, expect a balanced response from Beijing as Chinese carmakers will still be able to export to Europe, albeit at lower margins.

"I believe it is actually a flash in the pan. The tariffs are not so severe for the Chinese and absolutely necessary for Europe," said Massimo Baggiani, founder at Niche Asset Management in London. "If this hadn't happened, it would have been a significant problem for the European economy, the development of electric mobility, and employment."

By 1145 GMT, Europe's auto index fell 2.3% to its lowest level in more than four months, while the broader region-wide STOXX 600 was down 0.8%.

China-exposed Volvo Car was the biggest decliner, tumbling 6.2%, followed by German carmakers Porsche AG, Volkswagen, Mercedes and BMW, down between 1.7-3.7%.

Brussels said on Wednesday it would impose extra duties on imported Chinese electric cars from July, ranging from 17.4% for BYD to 38.1% for SAIC, on top of the standard 10% car duty.

According to Chinese state news agency Xinhua, Beijing hopes the European Union will reconsider tariffs on Chinese electric vehicles and stop going further in the "wrong direction" to shield its auto industry from competition.

Morgan Stanley said it was particularly cautious on luxury carmaker Porsche, majority controlled by Volkswagen. Porsche was trading at its lowest since listing in 2022.

"We expect sentiment towards German OEMs to stay depressed as this development could cause management teams to talk down FY24/25 numbers toward the lower end of guides," analysts at the U.S. bank said in a note.

UBS said that even if the tariffs become final it still expected leading Chinese players to press ahead with their expansion into the European market and accelerate the localisation of plants in the region, a welcome investment for states like Hungary, Italy and Spain.

"It's not clear so far if China will retaliate at all and if yes, whether it would happen within the auto sector," analysts at the Swiss bank said in a note. "Given the negative sentiment, we see a good entry point for top pick Mercedes."

Auto suppliers were also hit. Paris-listed Forvia and Valeo were down 5% and 3.2%, respectively.

Concerns over possible Chinese retaliation spread beyond the auto sector. Shares in French cognac maker Remy Cointreau fell 4.5%. A trade body for French cognac producers on Wednesday expressed concern over the EU's tariff decision.

China's commerce ministry said Chinese firms reserve the right to request anti-subsidy and anti-dumping investigations into European dairy and pork imports.

(Reporting by Danilo Masoni; Additional reporting by Ozan Ergenay, editing by Alun John, Bernadette Baum and Susan Fenton)