Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

(Updated )

If China's financial woes spell doom for Germany's automakers, somebody forgot to tell Daimler.

Its Mercedes-Benz brand recorded a 31 per cent jump in China sales in December, according to figures released on Friday, bringing the 2015 China increase to 33 per cent. Chinese buyers have snapped up 500 high-end Mercedes Maybachs every month since the model launched in the country in the February.

Yet regardless of that success, Daimler's shares have gyrated violently whenever China sneezes, as have other German automaker stocks. Daimler and BMW have lost a combined 24 billion euros ($26 billion) in market capitalization since the start of December on fears their China sales will come unstuck if the yuan falls and the Chinese economy stalls.

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A devalued Chinese currency would harm the ability of local buyers to afford luxury imported vehicles and push up the cost of importing components from Europe for the vehicles the carmakers produce in China.

But to an extent, we've been here before. When the Chinese stock market crashed in August and China's central bank moved to devalue the yuan, some analysts predicted German automakers would soon be forced to warn on profits. It didn't happen.

Make no mistake, China is hugely important for Germany's automakers. BMW's China sales increased from 11.6 per cent of the total in 2010 to 21.6 per cent in 2014.

But a plunging Chinese stock market doesn’t lead automatically to carmageddon (stocks aren't widely held), nor must a devaluation prove disastrous (German carmakers are manufacturing an increasing proportion of vehicles locally with Chinese joint venture partners).

Daimler's exuberant sales somewhat exaggerate the health of Chinese demand. Its performance is explained partly by its rebound from a faulty Chinese sales and distribution model that Daimler has since fixed. Some German carmakers have fared less well of late in China, with Audi recording a 1.4 percent sales drop in 2015. In the first 11 months, BMW sales only rose by 2.4 percent, compared to the double-digit growth it enjoyed there in the past.

Mercedes-Benz is catching up to its German rivals in China
Double-digit no more: China sales growth at Audi and BMW slowed in 2015
Source: Company news releases
*BMW 2015 data shows 11-months total to November.

Yet Mercedes-Benz is selling cars that rich Chinese consumers evidently still want. Sales of the S-Class saloon are booming, regardless of the supposed "new modesty" in China after a crackdown on corruption. China accounted for one-third of all S-Class sales last year.

Admittedly, competition with local Chinese carmakers has increased, putting pressure on the prices German automakers can charge. 

Yet, thanks in part to a tax cut for small-engine vehicles, the overall Chinese car market is expected to expand about 5-7 percent in 2016, which isn't too shabby under the circumstances.

And amid all the wailing over the yuan, it's easy to forget that until recently the euro was the sharply devaluing currency causing policymakers concern. As euro-dollar hedges taken out two years ago start to fall away this year, German carmakers should start to enjoy more of a boost to U.S. profits.

Even if the yuan suffered a 20 percent correction against the euro, hedging would cushion much of the short-term pain for German automakers and it would return the yuan to levels last seen in 2012-2013 -- a period when BMW and its compatriots had no complaint about China profits.

Providing investors can be reassured that China's rulers have not lost control over events, the sell-off may therefore be a buying opportunity, at least as far as Daimler is concerned.

Because of its range of sporty new models, Daimler is beloved by analysts. Yet its stock trades at only 7.7 estimated earnings for the next 12 months, a discount to BMW's 8.6 times. That makes Daimler a luxury investors can afford.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net