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The hostile imposition of tariffs would usually mean a slump in the targeted company’s shares. Not for BYD. The prospect of steep European tariffs on electric car imports from China had the opposite effect on the country’s biggest maker of electric vehicles. Its HK-listed shares jumped as much as 9 per cent on Thursday.
The EU will impose additional tariffs on EVs shipped from China as of next month, taking levies to as much as 48 per cent. For BYD, its company-specific rise means the new EU tariff will be 27.4 per cent — compared with the existing 10 per cent tariff. For local rival Geely, it will be 30 per cent. Shares in Geely and Zhejiang Leapmotor Technology also rose.
This positive market reaction was partly down to the oddity that BYD, the biggest threat in the European market, was hit with the lowest additional tariff among the companies named. The extra levy came in around half the upper end of analysts’ estimates.
Even if most of that tariff is passed on to buyers, the price-point for BYD cars would still be lower than the competing models made by European counterparts. And even at that lower price, BYD’s car designs, safety and battery technologies have continued to improve rapidly in recent years.
Moreover, BYD’s gross margins exceed 20 per cent — making it a rare example globally of a profitable EV maker and giving it more leeway amid price wars and tariff rises. Assuming the tariff increase is split evenly between BYD and the customer, Citi estimates BYD’s exports to Europe operations can still manage a net profit margin of 8.6 per cent, based on current production.
This looks like a coup from BYD, whose engagement in the tariff-setting process clearly managed to secure a good outcome. Moreover, some smaller rivals could suffer and export growth will probably slow for EV makers without BYD’s scale, margins and wide range of price offerings.
For Europe, this move always came with costs. Tariffs will add to EV sticker prices for European customers. It now makes more financial sense for Chinese EV makers to speed up plans to place production in the EU, cutting long-term production costs and making them more competitive. The risk of retaliation, between these two large trading partners, cannot be ruled out.
This exercise in protectionism has simply emphasised that stopping BYD’s march into Europe’s car market is no easy task.
