Lexus, BMW Set for China Bonanza as Xi Readies Tariff Cut

(Bloomberg) -- China is considering proposals to slash import duty on passenger cars by about half, a move that's set to give a lift to luxury-auto makers such as BMW AG and Toyota Motor Corp.'s Lexus unit, according to people with direct knowledge of the matter.

The State Council, or China's cabinet, is weighing plans to reduce the 25 percent levy -- which has been in place for more than a decade -- to 10 percent or 15 percent, said the people, who asked not to be identified as the deliberations are private. An announcement of a decision could be made as early as next month, the people said.

The move comes as investors fret about a mounting trade war between the U.S. and China. While an announcement could be claimed in some quarters as a concession to President Donald Trump, it may ultimately end up benefiting European and Asian carmakers more than their American counterparts because of China's outstanding threat to slap an additional 25 percent import duty on U.S-made automobiles.

China also argues that its plan to reduce import tariffs on foreign vehicles is long-standing and has rejected previous efforts by Trump to claim credit for it.

Shares of state-backed automaker BAIC Motor Corp., which counts Daimler as a partner, closed 3.6 percent lower in Hong Kong, after sliding as much as 6.4 percent on the news. Brilliance China Automotive Holdings Ltd. fell 3.2 percent. On the Frankfurt exchange, Volkswagen climbed 2.1 percent at 2:24 p.m., while BMW added 1 percent.

China's finance ministry didn't respond to a fax seeking comment.

China is heeding decades-long pleas from foreign carmakers for better access to its auto market, as its own manufacturers prepare to expand abroad. Last week, China announced a timetable to permit foreign automakers to own more than 50 percent of local ventures.

Read this: China's Car Revolution Is Going Global

China imported 1.22 million vehicles last year, or about 4.2 percent of the country's total sales of about 28.9 million automobiles. At the Boao Forum this month, President Xi Jinping reiterated China's commitment to reduce import tariffs on vehicles. In response, Tesla Inc. Chief Executive Officer Elon Musk lauded the move as a "very important action by China.”

High-end autos, in particular, will feel the effects of a tariff cut, as less of their production has moved locally. For example, Lexus would benefit as the only premium Japanese marque that doesn't manufacture in China or hasn't announced plans to do so.

Yet Lexus says it's increasing its focus on China, unveiling a redesign of its popular ES sedan at the Beijing auto show this week. The car has more room in the back seat to cater to affluent young Chinese with families and customers who prefer to be chauffeured.

Read more: luxury cars abound in this week's Beijing auto show

At the event, Mercedes debuted a long-wheelbase variant of the A-Class compact sedan to cater to Chinese tastes. Rupert Stadler, head of VW's Audi unit, said a lowered tariff would have “big potential” for the brand, which currently relies on imports for 10 percent of its China sales.

--With assistance from Yinan Zhao

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net, Haze Fan in Beijing at hfan40@bloomberg.net.

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Ville Heiskanen

©2018 Bloomberg L.P.

With assistance from Tian Ying, Haze Fan