Impact of Electric Vehicle Tariffs on Investors

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Published on: Jun 25, 2024 9:00:00 AM

Are your EV investments at risk? In EasyAssetManagement's latest report, learn how new EU tariffs on Chinese electric vehicles could shake up the market. German giants like Porsche, Mercedes, and BMW face potential backlash.

The European Union (EU) is escalating tensions with China over electric vehicles (EVs). After launching an anti-subsidy investigation last year, the EU Commission has now imposed additional tariffs on Chinese EVs entering Europe. While markets anticipated tariffs around 20-25%, the final numbers came in slightly lower, especially for companies that cooperated with the investigation (think BYD, a major Chinese EV maker). This surprised some analysts. There's still room for negotiation, though. Chinese companies and the Chinese government have until July 4th to reach an agreement with the EU.

Additionally, a vote on the final tariffs is scheduled for November. This situation raises the question: how will China react? Will they retaliate with tariffs on European goods, or will they seek a diplomatic solution? We'll have to wait and see how this trade spat unfolds in the coming months.

The EU's new tariffs on Chinese EVs pose a potential threat to German car manufacturers, who rely heavily on China for sales. While their exposure to the Chinese market remains significant (20-40% of earnings per share compared to 35-50% in 2019), there are reasons to believe the impact might be less severe than initially feared.

Firstly, the brunt of the tariffs could be borne by China itself. Mercedes-Benz, which exports high-end vehicles most likely to be affected, might be able to pass on some of the additional cost to their customers, who are typically less price sensitive.

Secondly, some German carmakers have a strategy in place to mitigate the impact. They operate assembly plants in Southeast Asian countries like Thailand and Malaysia. These plants could potentially import partially assembled vehicles from Europe and complete the final assembly for the Chinese market, avoiding the brunt of the tariffs.

Finally, not all EU member states are on board with the tariffs. Some have already voiced their opposition and could vote against the final implementation in November. This political uncertainty adds another layer to the situation.

While the situation is evolving, German carmakers have some options to navigate the potential storm. Their ability to adapt and utilize existing strategies could minimize the financial impact of the EU's move.

In summary, EU’s new tariffs on Chinese EVs may not be the big win some European automakers were hoping for.

Let's break down the situation:

Limited Boost for European Players: Companies like Renault, who primarily focus on the European market, won't see a significant advantage from the lower tariffs on Chinese imports.

German Giants Face Retaliation Risk: German carmakers like Porsche, Mercedes, and BMW could be on the receiving end of retaliation from China. The exact impact is still unclear, but estimates suggest a 20% retaliatory tariff on large engines could potentially hurt their earnings by 2-13%. This risk arises if China decides to mirror the EU's tariffs by imposing similar duties on specific German car imports.

Porsche, with its focus on large engines, is likely to be hit hardest by any potential tariffs. However, their strong brand image allows them some wiggle room. They might be able to pass on some of the additional costs to their customers, helping to soften the blow.

In essence, the EU's move is a double-edged sword for European automakers. While it might not significantly benefit some players, it exposes others to potential retaliation from China. The severity of the impact depends on the type of retaliation China chooses to implement. Brands with strong brand loyalty, like Porsche, may be better equipped to navigate this new economic landscape.

The EU has just taken a major step in its investigation into electric vehicles (EVs) imported from China.

After a year-long investigation into Chinese electric vehicle imports, the EU found China heavily subsidizes its entire EV industry. To even the odds for European manufacturers, the EU plans to slap temporary import duties on Chinese EVs. While companies can weigh in by July 4th, the EU is expected to finalize and enforce these duties very soon, potentially sparking a trade war between the two regions.

The EU's new tariffs on Chinese EVs may be a double-edged sword for German car manufacturers. While they're not directly hit by import duties (as they don't import many Chinese EVs), a bigger worry might be China's potential retaliation.

Here's why:

China Might Hit Back: Germany exports a significant number of luxury cars with large engines to China. If China retaliates with a 20% tariff on these imports, it could lead to a 2-13% drop in earnings for German carmakers (assuming they can't fully pass on the cost to customers).
Limited Price Flexibility: While German car companies can raise prices on their high-end vehicles to offset some of the tariff impact, they can't pass on all the cost. Unlike budget car buyers, luxury car customers are less sensitive to price increases.

This potential one-two punch of EU tariffs and Chinese retaliation could put a squeeze on German carmakers' profits.

The EU's recent tariffs on Chinese EVs have sparked a high-stakes game of electric poker. While European automakers might not reap the windfall they expected, German giants now face the potential lightning strike of Chinese retaliation. The coming months will be crucial as both sides navigate this charged atmosphere. Will diplomacy prevail, or will we see a full-blown trade war erupt, ultimately hindering the global transition to electric mobility? Only time will tell, but one thing is certain: the road to a clean transportation future just got a lot more complex.

Easy Asset Management steers clear of electric vehicle and most renewable energy companies. We haven't held Tesla stock in over a year, and our only green energy investment is in nuclear power. Overall, we're still skeptical about the long-term viability of this sector.

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Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.

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