08 October 2019 by jbchevrel
Daimler AG (DAIGR) is in the middle of the 12m recent range [50,110] closing the session at 70. The structural risks for DAIGR remain 1/ potential “extended recall in Europe and ROW in connection with Takata airbags”, provisions increased by +c€1B 2/ “ongoing governmental and court proceedings and measures relating to Mercedes-Benz Diesel vehicles”, expected expenses +€1.6B 3/ “earnings of Mercedes Vans in Q2-19” c+€0.5B 4/ “slower product ramp ups affecting product availability throughout 2019” esp. GLE model 5/ “lower growth than expected” in auto markets. Adding to this. Following a WTO ruling on Airbus in favour of the US, the US has decided to impose tariffs on $7.5B of European imports, starting on Oct 18th. Despite being okay with a settlement, the EU is currently considering retaliatory measures. But more important for DAIGR is the threat of US auto tariffs, which will probably come back to the foreground soon, as the negotiation window agreed in May ends in mid-November. A severe economic impact is expected, were 25% tariffs to be imposed by the US camp. Indeed, GDP is seen as declining -0.5% in Germany and -0.2/0.3% in the €zone as a whole. This adverse scenario would be negative for € credit as a whole, but would specifically lead to further underperformance in not just DAIGR but autos as a sector. Last weekend, DAIGR said German authorities are probing suspected faulty software in the carmaker’s Mercedes-Benz Sprinter vans after a report that 260k vehicles could be affected across Europe. German Federal Motor Transport Authority (KBA) is examining the vehicles which are a previous generation of the Mercedes-Benz GLK 220 diesel, for which the regulator issued a recall order back in June. KBA is looking into potential emissions manipulation in cars using “impermissible defeat devices,” Bild am Sonntag reported. DAIGR said it had informed the regulator that the “functionality at issue is contained in different production series” and that it had carried out a review. The review is complete and KBA has initiated a hearing procedure. For reference, DAIGR had been forced to recall 774k vehicles in Europe in 2018. DAIGR is currently As/A2s/A-s but the outlook for future margins might make rating agencies more stringent. The DAIGR stock is low end of the range, less than 10% away from its lowest level in 7 years.