With President Trump planning to impose a 25% tariff on foreign manufactured automobiles the Bloomberg World Auto Manufacturer’s Index declined as expected, falling by 1% and dragging year-to-date returns down to -9.1%. Even though stock prices in the sector have been steadily declining for all of 2018, short interest in the sector has decreased by $10.7 billion to $26.4 billion over the last six weeks, dropping from the 7th most shorted sector worldwide to 10th. While short interest has decreased, short profits continue to accumulate with short sellers earning $3.64 billion in year-to-date mark-to-market profits. With a trade war brewing in the sector, we can expect increased short selling in U.S., European and Asian auto manufacturing stocks as all parties ratchet up fair trade rhetoric and tariff threats.
While total short interest in the Auto Manufacturing Sector has been declining, several stocks have had increased short selling recently. Short interest in Daimler (DAI GR), BMW (BMW GR) and Fiat Chrysler (FCA IM) grew by a total of $428 million, +10%, over the last month. Since the proposed 25% tariff is to affect $200 billion of U.S. imports and total U.S. car imports were $180 billion in 2017, we should expect a decline in auto sales for Japanese, South Korean and Chinese auto manufacturers as well since they will also be subject to the increased tariffs. Short sale profits in the most shorted Japanese auto manufacturers Suzuki (7269 JP), Toyota (7203 JP) and Nissan (7201 JP) have been negligible in 2018, but with increased short pressure and expected selling by long shareholders ahead of tariff implementation we should see short activity accelerate and short profits grow as the tariffs cut into import sales volumes.
|Auto Manufacturing Sector (in $ millions)||Ticker||Country||$ Short
|Tesla Inc||TSLA US||USA||$10,475||-$242.4||-2.27%||+$1,457.1||+13.21%|
|Daimler AG||DAI GR||Germany||$2,989||+$989.9||+30.21%||-$114.7||-4.44%|
|Suzuki Motor||7269 JP||Japan||$1,384||-$53.5||-3.31%||-$125.2||-8.35%|
|BMW AG||BMW GR||Germany||$1,315||+$221.6||+17.13%||-$40.6||-3.14%|
|Ford Motor Co||F US||USA||$1,092||+$226.6||+15.71%||+$90.8||+7.72%|
|General Motors||GM US||USA||$902||+$155.0||+13.10%||+$63.3||+6.76%|
|BYD Co Ltd||1211 HK||China||$854||+$303.9||+31.90%||+$14.4||+1.66%|
|Volkswagen Pref||VOW3 GR||Germany||$743||+$66.2||+7.51%||-$20.5||-2.89%|
|Ferrari NV||RACE IM||Italy||$672||-$27.3||-8.04%||+$30.3||+4.70%|
|Toyota Motor||7203 JP||Japan||$471||+$68.9||+4.17%||-$11.8||-2.46%|
|Brilliance China Auto||1114 HK||H.K.||$469||+$276.2||+63.27%||+$99.2||+17.31%|
|Ferrari NV||RACE US||Italy||$468||-$90.8||-20.34%||+$15.9||+3.47%|
|Nissan Motor||7201 JP||Japan||$458||+$49.6||+8.00%||+$24.7||+4.69%|
|Fiat Chrysler||FCAU US||UK||$425||+$29.6||+6.21%||+$49.1||+11.24%|
|Great Wall Motor||2333 HK||H.K.||$411||+$193.1||+36.66%||+$25.1||+6.20%|
|Thor Industries||THO US||USA||$372||+$190.2||+50.85%||+$37.4||+9.89%|
|Fiat Chrysler||FCA IM||UK||$341||+$82.2||+38.43%||+$43.6||+15.70%|
|Daimler AG||DDAIF US||Germany||$322||+$26.3||+8.02%||-$16.7||-5.27%|
|Geely Automobiles||175 HK||H.K.||$275||+$97.5||+25.14%||-$3.8||-1.22%|
|Hyundai Motor||005380 KS||S Korea||$258||+$59.5||+19.94%||-$8.1||-3.34%|
|Peugeot SA||UG FP||France||$236||-$101.3||-17.97%||-$39.5||-18.82%|
|Honda Motor||7267 JP||Japan||$174||-$6.1||-1.12%||+$4.0||+1.16%|
|Volkswagen AG||VOW GR||Germany||$174||+$109.2||+21.12%||-$0.6||-0.44%|
|Subaru Corp||7270 JP||Japan||$137||+$1.0||+0.35%||-$0.6||-0.51%|
|Mitsubishi Motors||7211 JP||Japan||$118||-$28.4||-11.64%||-$0.9||-0.70%|
|WW Auto Manufacturing||$26,450||+$3,643.7||+11.50%||+$1,591.6||+5.77%|
Today’s price moves in the auto manufacturing sector generated $261 million in mark-to-market profits, a 1% gain on $26.4 billion of shorts. Today, shorts made most of their profits in Daimler, Ford, General Motors and Fiat Chrysler. If President Trump succeeds in imposing addition tariffs on auto imports we should short profits climb in most of the remaining larger shorts in Europe and Japan such as Suzuki, BMW, Volkswagen, Ferrari, Toyota and Nissan as short sellers build their positions and long shareholders flee into less tariff-affected sectors.
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Managing Director Predictive Analytics, S3 Partners, LLC
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