China slashes auto tariffs to 15%; Tesla, BMW seen as beneficiaries

Import tariffs will be cut to 15 per cent from 25 per cent for most vehicles from July 1, adding that this was part of efforts to open up China's markets and

China will steeply cut import tariffs for automobiles and car parts, opening up greater access to the world’s largest auto market amid an easing of trade tensions with the United States.
 

Import tariffs will be cut to 15 per cent from 25 per cent for most vehicles from July 1, the Ministry of Finance said on Tuesday, adding that this was part of efforts to open up China's markets and spur development of the local auto sector. A small number of imported trucks are taxed at 20 per cent currently.
 

Import tariffs for auto parts would be cut to 6 per cent from mostly around 10 per cent, the ministry said in a statement.
 

The move will be a major boost to overseas carmakers, especially helping premium brands such as Germany's BMW , electric car maker Tesla Inc and Daimler AG’s Mercedes-Benz close a price gap on local rivals.
 

“Benefits are huge for our business, especially Infiniti,” said a Yokohama-based executive at Nissan Motor Co Ltd referring to the Japanese firm's premium car brand.
 

 Also, Washington neared a deal to lift its ban on US firms supplying Chinese telecoms gear maker ZTE Corp, sources said on Tuesday. The reprieve for ZTE , hit by a seven-year ban in April that had crippled its operations, could include China removing tariffs on imported US agricultural products, as well as buying more American farm goods, the sources said.
 

Representatives for the US Treasury and Commerce departments did not comment.  
 

The two countries stepped back from the brink of full-blown trade war after talks last week, with the US appearing to set aside for now its demands that China revamp key planks of its industrial policy in exchange for buying more farm products. 
 

US President Donald Trump has adopted a more conciliatory stance in the trade dispute with China as North Korea, whose chief ally is Beijing, has called into question a summit planned for next month in Singapore with Trump.
 

Republican Senator Marco Rubio, who has been critical of Trump’s moves toward ZTE, blasted his administration over the reported agreement for having “surrendered” to Beijing and pledged that Congress, led by Trump’s fellow Republicans, would seek to block any deal with the company.

Trade war ebbs

• Import tariffs will be cut to 15 per cent for most vehicles from 25 per cent from July 1
• Tariffs for auto parts would be cut to 6 per cent from mostly about 10 per cent
• A deal on ZTE  likely involves China buying more US farm goods
• US Senator Marco Rubio criticises reported deal on ZTE

Japan, Turkey and Russia warn US of $3.5 bn tariff bill

Japan, Russia and Turkey have warned the US about potential retaliation for its tariffs on steel and aluminium, the World Trade Organization said on Tuesday, bringing the total US tariff bill to around $3.5 billion annually. 

The three countries detailed their compensation claims in notifications to the world trade body, following similar moves by the European Union, India and China. 
 

 Russia said the US tariffs, which President Donald Trump imposed in March, would add duties of $538 million to its annual steel and aluminium exports. Japan put the sum at $440 million. Turkey added a further $267 million.

JLR set to gain in volume

Tata Motors-owned Jaguar Land Rover (JLR) will be one of the beneficiaries among the global luxury carmakers of the proposed duty cut on imported cars in China.

Like its German rivals BMW and Mercedes, JLR counts China as one of its most important markets, both in terms of volume as well as profitability.
 

According to estimates by analysts, the region accounts for 26 per cent approximately at the Ebitda (earnings before interest, tax, depreciation and amortisation) level in the company’s earnings.  Its contribution in volume terms in total sales in 28 per cent.  In April, JLR retailed 45,180 units of which China accounted for 12,970, up 29 per cent over the year-ago period.

  

A spokesperson at Tata Motors declined to comment ahead of the company’s earnings report on Wednesday. An email sent to JLR’s spokesperson remained unanswered.

 “If the import duty is cut, it will be a big positive for JLR operations in China,” said Bharat Gianani, an analyst at Sharekhan.  Six of every 10 models that JLR sells in China are made locally and the rest are imported from the UK.  
 

Another company that will gain from the duty cut is Motherson Sumi, which counts Audi and Mercedes as its key customers.  The reduction in tax will make models more affordable, he said.  The level of impact will be governed by the extent to which the firms pass on the benefits to the buyers, he said.
 

The move to pare duty has come at a time when JLR has been facing strong headwinds in Europe, owing to increased taxation on diesel cars. 
 

In the past one year, Tata Motors’ stock has dropped 31.6 per cent, underperforming on the Sensex as well as the auto index. Snapping a declining streak, the stock closed at ~307.70, up 4 per cent on Tuesday.