news

Chinese EV stocks surge after EU slaps up to 38% additional import tariffs

Nurphoto | Nurphoto | Getty Images
  • Shares of Chinese EV makers mostly surged on Thursday after the EU slapped higher tariffs of up to 38% on Chinese EVs a day earlier.
  • "The move is modest compared with the stiff 100% tariffs on Chinese EV imports into the U.S., hiked from 25% last month," said Vincent Sun, equity analyst at Morningstar, in a Wednesday note.
  • Joseph Webster, senior fellow at the Atlantic Council's Global Energy Center, said the EU "seems to be warning" SAIC to build manufacturing operations within Europe.

Shares of Chinese electric vehicle makers mostly surged on Thursday after the European Union announced higher tariffs of up to 38% on Chinese EVs a day earlier.

Chinese EV-maker BYD, which was the top gainer on the Hang Seng Index, jumped 8% during morning trade but pared some gains to trade at about 6% in the afternoon. Geely was up about 4% initially, while counterparts Nio and Li Auto saw their shares climb about 1.5%. State-backed SAIC was down 1.5% in later afternoon trade.

Citi analysts said the EU's additional tariffs were "generally benign," while one analyst from Morningstar pointed out that the additional duties were "modest" in comparison to U.S. hikes on Chinese EVs last month.

On Wednesday, the EU said it would impose extra tariffs on Chinese EV players with a large footprint in Europe. BYD will be subject to additional tariffs of 17.4%, Geely will get an extra 20% duty. SAIC will have to pay additional duties of 38.1% – the highest among the three. This is on top of the standard 10% duty already imposed on imported EVs.

All three manufacturers were sampled in the EU probe, which is ongoing.

Other Chinese EV firms, which cooperated in the investigation but have not been sampled, would be subjected to 21% in extra tariffs while those which did not cooperate in the investigation would face 38.1% in additional duties, the commission said. 

The EU said in a statement it has provisionally concluded that Chinese EV makers benefits from "unfair subsidization," which resulted in "threat of economic injury" to EU's EV industry.

"The move is modest compared with the stiff 100% tariffs on Chinese EV imports into the U.S., hiked from 25% last month, by the Joe Biden administration and the 25% provisional duties are in line with market expectations of 20%-25%, in our view," said Vincent Sun, equity analyst at Morningstar, in a Wednesday note.

Citi analysts on Thursday said the tariff hike is "generally benign" compared to their estimates of 25% to 30%. "The punitive tariffs could be impactful for the EV sector, but would not derail China's ongoing recovery," said Citi.

The additional duties come after the EU launched a probe in October. The duties are currently provisional, but will be introduced from July 4 in the event that discussions with Chinese authorities do not result in a resolution, the commission said in a statement. Definitive measures will be placed within four months of the imposition of provisional duties, the bloc said.

In response to the provisional duties, China said Wednesday the move was "blatant protectionism that will create and escalate trade frictions." A spokesperson for the Ministry of Commerce said Beijing was "deeply concerned and strongly dissatisfied" with the development as it "disrupts and distorts" the global EV industry.

Expanding in Europe

Joseph Webster, senior fellow at the Atlantic Council's Global Energy Center, said the EU "seems to be warning" Chinese state-backed SAIC to build a production facility within Europe, or else face tariffs.

"China's SAIC group received the maximum tariff rate of 38.1 percent. The automaker has a limited footprint on the continent, and it has yet to select a site for its first European production facility, despite nearly a year of consideration," said Webster in a Wednesday report.

"Both BYD and Geely have substantial investments in Europe," Webster said.

In December, BYD has committed to building a new EV plant in Hungary after opening an electric bus manufacturing plant in the country. Geely owns the Swedish car manufacturer Volvo and has started to move production of some vehicles from China to Belgium.

Setting up local factories could be "the ultimate solution" for China's original equipment manufacturers in the long run, Nomura analysts said Thursday, adding that these companies have started to seek overseas expansion "in order to better fit into the global auto market."

Eyes on China

China's reaction is the next thing to look out for, analysts said, with possible retaliation from Beijing.

Citi said China "looks set to retaliate but not escalate," as the "benign" tariffs could bring "contained retaliation."

"The key here will be how China reacts to this, and then also how the EU reacts to some of these requests [from] companies like Tesla to reconsider the tariffs," said Paul Triolo, partner for China and technology policy lead at Albright Stonebridge Group.

"The danger is getting into sort of a tit-for-tat tariff battle here. Nobody seems to want this," Triolo told CNBC's "Street Signs Asia" on Thursday, adding that the Commission may "show some flexibility, as they did in making this decision."

– CNBC's Lim Hui Jie contributed to this report.

Copyright CNBC
Contact Us