June 21, 2018 11:45 AM, EDT

Daimler Lowers Earnings Expectations Amid Increased Chinese Tariffs

Daimler AG Mercedes-Benz logo on Concept EQA grille(Andrew Harrer/Bloomberg News)

Daimler AG lowered estimates of its earning potential for 2018 as its car unit feels the effect of higher tariffs.

At Mercedes-Benz Cars, fewer-than-expected SUV sales and higher-than-expected costs — not completely passed on to the customers — must be assumed because of increased import tariffs for U.S. vehicles into the Chinese market, according to a company statement.

This effect cannot be fully compensated by the reallocation of vehicles to other markets.

Daimler AG logo

“Changes in trade policy could cause us to have to question the outlook,” Federal Reserve Chairman Jerome Powell said during a panel discussion at a European Central Bank conference in Sintra, Portugal, Bloomberg News reported. “For the first time, we’re hearing about decisions to postpone investment, postpone hiring.”

President Donald Trump has imposed duties on steel and aluminum imports in the name of national security and is vowing to slap additional tariffs on Chinese imports in response to allegations of theft of intellectual property, Bloomberg reported.

Another negative effect on Daimler’s earnings is to be expected in the second half of the year in connection with the new certification process underpinning the Worldwide Harmonized Light Vehicles Test Procedure — used to test fuel mileage and emissions.

Mercedes-Benz Cars, Daimler’s largest business unit, posted record demand in the first quarter ended March 31. About 6,200 employees are involved in the United States building the cars.

Furthermore, earnings at Mercedes-Benz Vans are affected in connection with the recall of diesel vehicles (over emissions issues). Additionally, earnings at Daimler Buses are negatively affected by declining demand in Latin America.

As a result, Daimler has stated the following expectations for earnings before interest and taxes in the year 2018:

Mercedes-Benz Cars: Slightly below the previous year.

Mercedes-Benz Vans: Significantly below the previous year’s level.

Daimler Buses: In the magnitude of the previous year.

Daimler Group: Slightly below the previous year’s level.

The company did not single out its commercial vehicle unit, Daimler Trucks — which posted a first-quarter increase in sales of 21% to 113,800 units. Of those, the NAFTA region accounted for 40,800 vehicles, compared with 32,900 a year earlier.