By William Boston 

BERLIN -- Global auto stocks were pummeled Thursday after Daimler AG issued a profit warning overnight that the Mercedes-Benz owner blamed on trade tensions between the U.S. and China.

Daimler's warning -- that Chinese retaliatory import duties on cars built in the U.S. would hurt sales and profits of its sport-utility vehicles -- sparked a 5% fall in its shares and also hit other auto stocks as investors scanned for the next victim. Shares in Fiat Chrysler Automobiles N.V. dropped 4.8%, BMW AG fell 3.7% and Volkswagen AG was down 4.6%. In the U.S., Tesla Inc. fell 3% and Ford Motor Co. was down 1%.

The caution suggests that the U.S. operations of German manufacturers, which build tens of thousands of SUVs in the U.S. for export to China, are set to be hit harder by new Chinese tariffs than American manufacturers that are Beijing's explicit target.

With global supply chains designed for a world of open trade and low tariffs, Germany's auto giants are being caught in the crossfire with few opportunities to shift sales to other, more welcoming markets.

Thomas Sedran, Volkswagen's strategy chief, said he didn't want to speculate about how the company would respond to higher U.S. and Chinese tariffs, or trade tensions between the U.S., Mexico and Canada, until these things actually happen. He did, however, acknowledged that Volkswagen, the world's biggest auto maker by sales, had few routes of escape.

"Shifting production on short notice is not possible, it's not feasible. At the end of the day this will have an impact on the pricing of vehicles. At this stage we are in a more reactive mode," he said.

A BMW spokesman said the company was exploring a "variety of scenarios and strategic options," but wasn't making any changes yet.

"The company's business outlook remains unchanged," the BMW spokesman said, adding that its forecasts presume "global economic and political conditions do not change significantly."

In May, China said that beginning July 1, it would cut tariffs on vehicle imports to 15% from 25%, a longstanding rate, to quell the Trump administration's complaints of a trade imbalance. But after President Donald Trump went ahead and ordered import duties on billions of dollars of Chinese goods, Beijing said it would maintain the high duty on U.S.-made vehicles.

German auto makers such as BMW, and Daimler's Mercedes-Benz, as well as electric-car maker Tesla and Ford, would have benefited from the lowering of Chinese duties. Those companies collectively sold about 240,000 U.S.-built vehicles in China last year, according to research firm LMC Automotive.

"This effect cannot be fully compensated by the reallocation of vehicles to other markets," Daimler said in a statement late Wednesday. The company declined to comment further.

Daimler called China's import tax on U.S. autos the "decisive factor" in its projection of lower-than-expected earnings. But given the fact that the U.S. tariffs on China and Beijing's retaliation won't come into effect until next month, some analysts wondered if Daimler wasn't using the tariffs as a smoke screen to conceal more fundamental problems with its SUV lineup.

"We find it curious that Daimler should act now," said Arndt Ellinghorst, an analyst at Evercore ISI, a London-based brokerage. "Could it be that the company's aging SUV portfolio is experiencing lower sales and higher costs than expected across the board, irrespective of the ongoing trade discussions?"

Still, Daimler's profit warning is one of the first signs that the global trade dispute sparked by Mr. Trump is fueling a retaliation that is hurting manufacturers in the U.S. that export their products abroad.

"It is not a trade war yet," a senior German government official said this week. "But this is how trade wars begin."

The German auto industry has long made a huge bet on China. BMW and Mercedes-Benz generate about a quarter of their unit sales in China, with a large portion of those vehicles exported from their factories in Europe and North America.

Daimler, BMW and Volkswagen now operate four manufacturing plants in the U.S. that employ 36,500 American workers. Last year, the German companies produced 804,200 vehicles at those plants, but less than half were sold in the U.S. The rest, around 480,911 vehicles, were exported to Canada, Mexico, Europe, China and other markets.

Of the 594,000 vehicles that BMW sold in China last year, including its top-line sedans and SUVs, around 194,000 were imported. Just under 100,000 of those vehicles came from BMW's plant in Spartanburg, South Carolina, the company's main production site for its X-series line of SUVs, which produced 371,000 vehicles last year, BMW said.

Though not related to the U.S. tariff moves, BMW is already shifting some U.S. SUV production, a portion of its X3 output, to China rather than continue to export those vehicles from the U.S. An acceleration of this trend could mean job losses in the U.S.

Volvo, the Chinese-owned Swedish premium car maker, opened its first U.S. manufacturing plant in South Carolina this week. The plant will manufacture Volvo's new S60 luxury sedan and already employs 1,200 workers. By the end of the year, that number will rise to 1,500, Volvo CEO Hakan Samuelsson told The Wall Street Journal. In three years, Volvo plans to add a second model and boost employment to 4,000 people.

"But half of those people will build cars for export," said Mr. Samuelsson. "Those jobs would be in jeopardy if trade is restricted. We hope that will not happen."

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

June 21, 2018 11:20 ET (15:20 GMT)