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Daimler AG  (DMLRY) shares traded lower Thursday, pulling European auto stocks firmly into the red, after the luxury carmaker told investors that tighter emissions stands would clip profits for at least the next two years.

In a presentation for its annual capital markets day in London, Daimler said costs linked to the tougher EU targets on CO2 emissions from passenger cars, which will be phased-in from next year, will add an extra €1 billion in expenditures as the group shifts focus to hybrid and electric vehicles.

"We are positioning the company for the transformation with a clear strategy for the future. The expenditure needed to achieve the CO2 targets require comprehensive measures to increase efficiency in all areas of our company. This also includes streamlining our processes and structures," said Daimler chairman Ola Källenius.

"This will have a negative impact on our earnings in 2020 and 2021. To remain successful in the future, we must therefore act now and significantly increase our financial strength," he added.

Daimler shares were marked 3.3% lower in early Thursday trading in Frankfurt to change hands at €51.78 each, while domestic rivals BMW AG (BMWYY) and Volkswagen AG (VLKAY) fell 1% each. 

European auto stocks were also pressured by today's deadline for President Donald Trump to either apply tariffs of 25% to regional imports into the United States or postpone that decision for another six months. Trump told reporters in Washington yesterday he's make an announcement "soon". 

European carmakers had been under pressure from comments made during Trump's State of the Union Speech to Congress earlier this year, when he urged lawmakers to pass the United States Reciprocal Trade Act, "so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the exact same product that they sell to us."

The EU exported around 1.155 million cars to the U.S. market last year, according to the European Automobile Manufacturing Association, with total value of just over €37.3 billion ($41.8 billion).

The U.S, in contrast, moved only 267,653 cars in the other direction, a value of just €5.5 billion but still nearly 20% of the sector's entire international export base.

Cars imported into the United States from countries that don't have existing pacts with Washington are subject to a 12.5% levy, while pickup trucks are subject to a 25% tariff.

That said, some of the largest production facilities of Europe's biggest carmarkers are located in the United States, with plants in Vance, Al. and Spartanburg, S.C. and Chattanooga, Tn., that assemble around a third of the German cars sold domestically.