U.S President-elect Donald Trump warned German car companies he would impose a border tax of 35 percent on vehicles imported to the U.S. market, a plan that drew sharp rebukes from Berlin and hit the automakers' shares.
In an interview with German newspaper Bild, published on Monday, Trump criticized German carmakers such as BMW, Daimler and Volkswagen for failing to produce more cars on U.S. soil.
"If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax," Trump said in remarks translated into German.
"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that," Trump said.
Volkswagen shares closed down 2.2 percent, while BMW and Daimler's shares ended 1.5 percent lower.
Under pressure to deliver on campaign promises to revive U.S. industrial jobs, Trump has turned his fire on carmakers that use low-cost Mexican plants to serve the U.S. market. He has also warned Japan's Toyota it could be subject to a "big border tax" if it builds its Corolla cars for the U.S. market at a planned factory in Mexico.
All three German carmakers have invested heavily in Mexico, but also pointed out on Monday that they manufacturer in the United States as well.
BMW executive Peter Schwarzenbauer told reporters the company was sticking to plans to invest around $1 billion in a new plant in Mexico, which is due to go into production in 2019 and create at least 1,500 jobs.
"The president's powers are considerable. He can legally impose tariffs of up to 15 percent for 150 days. Trump is not constrained by Congress," said Simon Evenett, professor of international trade at Switzerland's University of St Gallen.
"Even if foreign companies object and seek to challenge the legality of tariffs, it will take at least 18 months to get decided. Corporate strategies will be disrupted by then."
While investing in Mexico, German carmakers have quadrupled light vehicle production in the United States over the past seven years to 850,000 units, more than half of which are exported from there, Germany's VDA automotive industry association said.
"In the long term, the United States would be shooting itself in the foot by imposing tariffs or other trade barriers," VDA President Matthias Wissmann said in a statement.
German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more, the VDA said.
Speaking in tabloid newspaper Bild, German Economy Minister Sigmar Gabriel said that rather than trying to penalise German carmakers, the United States should instead respond by building better and more desirable cars.
Norbert Roettgen, head of Germany's foreign affairs committee, said Berlin needed to take Trump's comments seriously. "He seems to be absolutely focused on short-term job interests and security interests ... not that he is looking for free trade so much, but more for protection," he told Reuters.
Daimler's Mercedes-Benz and BMW already have sizeable factories in the United States where they build higher-margin sports utility vehicles (SUVs) for export to Asia and Europe.
Around 65 percent of BMW's production from its factory in Spartanburg, South Carolina, is exported overseas. BMW builds the X3, X4, X5 and X6 models in the United States.
"It is surprising that Trump singles out the carmaker that exports more vehicles from the United States than any other manufacturer," Evercore ISI analysts said.
A BMW spokeswoman said the planned plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series from 2019, with the output intended for the world market. The plant would be an addition to existing 3 Series production facilities in Germany and China.
In June last year, BMW broke ground on the plant, pledging to invest $2.2 billion in Mexico by 2019 for annual production of 150,000 cars.
Daimler has said it plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan in Aguascalientes in Mexico. A spokesman for Daimler declined to comment on Trump's remarks.
Last year, VW's Audi division inaugurated a $1.3 billion production facility with 150,000 vehicle production capacity near Puebla, Mexico. Audi said it would build electric and petrol Q5 SUVs in Mexico.
Audi declined to comment on Monday. VW also declined to comment on Trump's remarks but noted it was investing another $900 million in its U.S. plant in Chattanooga, Tennessee.
Trump called Germany a great car producer, saying Mercedes-Benz cars were a frequent sight in New York, but claimed there was not enough reciprocity. Germans were not buying Chevrolets at the same rate, he said, calling the business relationship an unfair one-way street.
Chevrolet sales have fallen sharply in Europe since parent company General Motors in 2013 said it would drop the Chevrolet brand in Europe by the end of 2015. Since then, GM has focused instead on promoting its Opel and Vauxhall marques.
Asked by Reuters whether Trump could take any steps to make it easier for GM to sell more American-made cars in Europe, GM Chief Executive Mary Barra said the company aimed to build cars in markets where they are sold.
"We're a global company so we're going to continue that focus just because from an economic perspective that generally turns out to be the best framework," she said. "I think there is a lot that we can work on with President-elect Trump."