DETROIT (Reuters) – German luxury automaker BMW said on Friday that it will be unable to “completely absorb” a new Chinese 25 percent tariff on imported U.S.-made models and will have to raise prices on the vehicles it makes in Spartanburg, South Carolina.
BMW said it is “currently calculating related necessary pricing increases” for U.S.-made models imported into China and will announce them “at a later stage.”
BMW exports high-margin X4, X5 and X6 SUV and crossover models to China. Last year, the automaker shipped more than 100,000 vehicles from the United States to China.
China, which just days ago cut tariffs on all imported automobiles, slapped an additional 25 percent levy on 545 American products, including U.S.-made cars, beginning on Friday.
The move came in response to the Trump’s administration tariffs on $34 billion of Chinese imports.
This poses a tough choice for automakers: absorb the cost of tariffs and take a hit to profits, or hike prices and possibly lose sales.
“The question for automakers is, are you able to sell your products to consumers at a higher price?” said Johan Gott, a principal at management consulting firm A.T. Kearney. “And if you can’t, what are you going to take that (profit) margin out of?”
Gott said automakers are already dealing with steel and aluminum tariffs in the United States. They also face the possibility that Trump may impose tariffs of up to 25 percent on vehicles imported from the European Union and the U.S. president has threatened to pull out of the North American Free Trade Agreement.
“If you are an automaker, right now you face the potential for a great deal of disruption,” Gott said.
Ford Motor Co said on Thursday for now it will not hike prices of imported Ford and higher-margin luxury Lincoln models in China.
German automaker Daimler AG said last month its 2018 pre-tax profits would fall as tariffs on cars exported from the United States to China would hurt sales of high-margin Mercedes-Benz SUVs.
A spokeswoman for Daimler said the automaker is monitoring the tariff situation, but would not comment on its pricing strategy.
On the other end, General Motors Co imports the Chinese-made Buick Envision SUV into the United States, which is now subject to a tariff. Last year, GM imported 41,000 of them.
A GM spokeswoman said no decision has yet been made on a possible price increase for the Envision in the U.S. market.
Reporting by Nick Carey; editing by Chizu Nomiyama and Nick Zieminski