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Daimler profit warning sends shivers across automakers on a warm summer day

Germany-based luxury carmaker Daimler, which owns the marquee Mercedes-Benz car brand cut its CY2018 profit forecast amid the ongoing trade war between China and the United States. The carmaker said that profit for Mercedes-Benz could be hit in CY2018 due to fewer SUV sales and rising operating costs, all of which may not be passed on to customers. It further said that “it must be assumed because of increased import tariffs for US vehicles into the Chinese market. This effect cannot be fully compensated by the reallocation of vehicles to other markets”. Apart from the trade war, profits for Daimler could also get depressed due to a product recall that it faced in Germany earlier this month and declining demand in Latin America.

This announcement sent shockwaves across major automobile stocks, which shed between 1% and 4% of their stock price yesterday. The announcement could also have an impact on Tata Motors owned British marquee carmaker Jaguar Land Rover (JLR), which has presence in Europe, China, South America, India, USA, etc.

While Daimler has so far been the only major automaker to have explicitly issued a profit warning, the same could have an impact on earnings of other automakers that have presence globally. Earlier, JLR had decided to cut nearly 1,000 jobs at two of its production sites ahead of Brexit. Volvo Cars CEO warned earlier this week that higher tariffs could affect the company’s plans to hire nearly 4,000 workers at a new vehicle assembly plant in South Carolina.

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