China EV Stocks Rise on Bets Tariffs Are Manageable: Street Wrap

(Bloomberg) — Chinese electric-vehicle stocks gained as analysts said the European Union’s preliminary announcement of tariff increases was in line with market expectations and manageable for companies with cost strength like BYD Co Ltd.

Most Read from Bloomberg

BYD’s Hong Kong-listed shares added as much as 8.8%, the most since January 2023, more than making up a drop Wednesday before the decision. Peers Geely Automobile Holdings Ltd. and Zhejiang Leapmotor Technology Co. advanced more than 4%.

BYD should be less affected than peers given its lower-than-industry average tariff rate, while SAIC Motor Corp. is seen as the biggest casualty given its higher duties and bigger EU sales contribution, analysts said. SAIC’s Shanghai-listed shares dropped as much as 3.1% Thursday.

Here is what analysts are saying:

Bloomberg Intelligence (Joanna Chen)

• “BYD will likely be able to absorb most of the burden from EU import duties on Chinese BEVs, since its cars carry peer-beating profitability and are subject to a 17.4% added tariff versus the 21% industry average”

• SAIC’s MG Brand “may suffer the most” as its BEV sales in the bloc account for nearly 10% of the global total versus just 1% for BYD

• Both carmakers plan European factories, but output may wait until 2026-27

Citigroup (Jeff Chung)

• Citigroup opened a 30-day upside watch on BYD as the EU tariff hike came in better than the firm’s expectation and should improve the automaker’s export growth visibility into the second and third quarters of the year

• BYD’s EU tariff is lower than other China players, which bodes well for market-share gains

Morgan Stanley (Tim Hsiao)

• “Carmakers we spoke to plan to pass on part of the additional tariffs to customers to stay profitable, but not all to remain price competitive; our calculations suggest that Chinese players may need to raise selling prices by 15% to 30%”

• Given the latest tariffs target mostly BEVs, expect a higher influx of China-made plug-in hybrid EVs (PHEVs) into Europe, which could bode well for brands like BYD, Lynk and Volvo

• “We believe the EU’s punitive tariff hike will slow China EVs’ push, but is unlikely to stop it; accelerating localization plans will be key”

Story continues

UBS (Paul Gong)

• BYD’s additional 17.4% tariff may be manageable given its significant cost advantage versus peers, though effectively ironing out its cost advantage and thus preventing its dominance in destination markets

• The tariff boost will likely “significantly curb” SAIC’s competitiveness in Europe versus both local and Chinese EV makers

• Negotiations by the Chinese government and potential retaliation are key points to watch

Daiwa (Kelvin Lau)

• The varying extra tariff rates are probably partly due to differences in selling-price strategies, as BYD’s prices are already high in Europe, while SAIC’s MG EV prices are low

• The additional tariffs do not apply to PHEVs, which is a positive for PHEV producers including BYD

• “We do not see the tariff hikes by the EU as a major negative,” and see the EU market still open to China automakers

JPMorgan (Nick Lai)

• “The total tariffs are pretty much in line with our expectations and market consensus of around 30% except for SAIC”

• The share prices of the relevant Chinese stocks could be weak despite most having very limited revenue or earnings exposure to Europe

• With a 27.4% EU tariff from July, BYD’s per unit EU profit could still be around 1.5 times higher than the same car sold in China, though less than previously

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.