Since the start of the week, China has been modifying its currency to yield a lower rate against foreign exchange markets, which has affected investor trust into German auto stocks.
Automakers such as BMW, Volkswagen AG or Mercedes-Benz have come to be highly dependent on their profits sourced from China, the world’s largest auto market. But doom and gloom has behest this year – the country’s economy – the second biggest in the world – has been growing at the slowest pace in 25 years and auto sales have started contracting after the stock market rout that started mid June. Adding to the mix of worries has been the latest maneuvers on the currency front – with China devaluing its yen in a bid to support local companies. Analysts still believe the implications are small on BMW, VW AG and Mercedes profits as the currency move was rather small. But during the next phase of economic development in China the German automakers are warned to expect even more competition from local companies.
Volkswagen – with its trio of big money makers in China: the namesake brand, Audi and Porsche – has lost about four percent of its value for two consecutive days on Wednesday. BMW and Mercedes’ owner Daimler meanwhile slid almost three percent, recovering a bit from Tuesday’s loss. But industry watchers say the automakers and their investors should brace for more volatility in the period to come – with the devaluation an alarm trigger about the real state of the Chinese economy.