According to reports, tariff escalation risks appear to be rising for European Autos, with China signaling it's ready to unleash tariffs of as much as 25% on imported cars with large engines.
The reports come as trade tensions escalate with the US and European Union.
In a post on X (formerly Twitter) on Tuesday, Bloomberg noted that the China Chamber of Commerce to the EU account tweeted that it was informed by insiders that the country "may raise temporary tariffs on EU's large-engine cars."
In a follow-up tweet, they added, "The chamber perceives this information as significant to the China-EU trade relationship and economic ties."
Following the news, shares of European carmakers declined, with Mercedes-Benz Group AG (MBGYY) and BMW (BMWYY (OTC:BMWYY)) AG both falling more than 2% on Wednesday. Volkswagen AG (OTC:VWAGY) declined over 1%.
Following the report, analysts at Morgan Stanley said they see the reports "as casting creating more uncertainty around the end-point for EU-China tariffs for new cars, with risks around trade barriers clearly rising quickly now."
"We continue to think that any change in the tariff landscape should, ceteris paribus, support Renault and Stellantis relative to the German OEMs," the bank added. "This reflects the fact that both companies generate a large share of revenues in Europe but have limited exposure to China."
"This supports a cautious view on German OEMs which is consistent with our recent deep-dive on the space with fresh Underweights on Porsche and Volkswagen."