Nomura: Lower China auto tariffs will both help and hurt Japan’s automakers

Novelty Japan pens at DaisoNovelty Japan pens at Daiso

Chinese President Xi Jinping’s Boao Forum speech surprised with its announcement the mainland would cut tariffs on auto imports, and the change carries both good news and bad for Japanese automakers, Nomura said in a note on Tuesday.

“This will substantially lower tariff payments for companies that export autos to China, thereby boosting their profits,” it said, but it added, “increased imports will likely increase supply on the Chinese market, and in the absence of any substantial change in demand, we think the issue of low capacity utilization will only get worse, and forecast a further fall in selling prices because of oversupply.”

If China’s auto-import tariff is cut to 10 percent from the current 25 percent and sales don’t rise, Toyota’s operating profit would likely rise by 85 billion yen, Subaru’s by 15 billion yen, Nissan’s by 10 billion yen and Mitsubishi Motors’ by 2 billion yen, Nomura estimated.

“We think the prospect of increased growth via imports is a particular positive for the Lexus and Subaru brands, which have no local production in China and whose expansion has been hampered by high tariffs,” it said, noting that luxury vehicles were around 75 percent of China’s 1.065 million automobile imports in 2017.

Auto-parts makers, especially Toyota affiliates, were also likely to benefit if Toyota’s luxury car exports, including Land Cruiser and Lexus models, rise, Nomura noted.

“This is because sales per vehicle are high for luxury autos, and because higher sales in Japan more readily translate into higher profits than higher sales in other regions,” Nomura said. “We see particular tailwinds from increased luxury vehicle output at Toyota for Toyota Boshoku and Toyoda Gosei, which manufacture interior and exterior components that account for a high proportion of prime costs for such vehicles.”