June 21 2024: Shares of Chinese electric vehicle (EV) companies fell on Friday following reports that the Canadian government is considering new tariffs on Chinese-made EVs, similar to measures taken by the US and European Union.
Impact on Stocks
US-listed shares of Nio (NYSE) and Li Auto (NASDAQ) dropped by 1.4% and 1.5% respectively in premarket trading after Bloomberg News reported that public consultations on the proposed tariffs are likely to be announced soon.
Canada’s Consideration of Tariffs
Prime Minister Justin Trudeau is facing increasing pressure to follow the US’s lead. In May, President Joe Biden’s administration announced plans to nearly quadruple tariffs on Chinese EVs, raising them to 102.5%. Similarly, the European Union recently announced its intention to increase tariffs on Chinese EVs, with some levies potentially reaching 48%.
Analysts’ Perspectives
Morgan Stanley analysts described Canada’s potential tariffs as a symbolic and preemptive move to limit China’s EV market expansion. They noted that Canada, which houses production facilities for US automakers like GM and Ford, could strategically expand its battery supply chain given its lithium resources.
“Ultimately, production localization holds the key to entering developed markets; hence emerging markets (ASEAN, LaTAM, Middle East) appear more favorable for China EVs near term,” the analysts added.
Broader Implications
Analysts are also watching other NAFTA regions, particularly Mexico, to see if these countries will follow the US in raising EV tariffs. The move to increase tariffs on Chinese EVs comes amid concerns in Western democracies about China’s overproduction of key goods, seen as an effort to dominate global supply chains and undermine local industries.
Expansion of Chinese Companies
Chinese companies like BYD have been aggressively expanding into global markets, making battery-electric vehicles a significant focus of these tariff plans.
