China’s electric vehicle stocks soared after the EU imposed additional import taxes of up to 38%

Shares of Chinese electric vehicle makers mostly rose sharply on Thursday morning after The European Union announced higher tariffs up to 38% for Chinese electric vehicles a day earlier.

Hong Kong Hang Seng Index rose 1.23% at the open, largely driven by gains in electric vehicle stocks.

electric vehicle company BYDThe stock gained the most on HSI, rising 8% in morning trading. Geely has increased by about 4%, while partners Nio And Li Auto saw their shares increase 1.75% and 2.67% respectively. State-backed SAIC has decreased by more than 2%.

One analyst pointed out that EU tariffs are “modest” compared to US tariffs on Chinese electric vehicles.

On Wednesday, the EU said it would impose additional tariffs on Chinese electric vehicle makers with large footprints in Europe. BYD will subject to an additional tax of 17.4%, Geely will be subject to an additional tax of 20%. SAIC will have to pay an additional tax of 38.1% – the highest of the three. This is top standard A 10% tax has been imposed on imported electric vehicles.

All three manufacturers were sampled in the ongoing EU investigation.

The commission said other Chinese electric vehicle companies that cooperated in the investigation but were not yet sampled would be subject to an additional 21% tariff while those that did not cooperate in the investigation would face additional tax rate of 38.1%.

The EU said in a declare it has provisionally concluded that Chinese electric vehicle manufacturers benefit from “unfair subsidies”, resulting in a “threat of economic damage” to the EU electric vehicle industry.

“The move is modest compared to the tough 100% tariff on Chinese electric vehicle imports to the US, which the Joe Biden administration increased from 25% last month, and the temporary 25% tariff in line with Market expectations are 20%-25%, in our view,” Vincent Sun, equity analyst at Morningstar, said in a note Wednesday.

Citi analysts on Thursday said the overall tax hike was “benign” compared to their estimate of 25% to 30%. “The punitive tariffs may have an impact on the electric vehicle sector, but will not hinder China’s ongoing recovery,” Citi said.

The additional tariffs come after the EU launched an investigation in October. The Commission said in a statement that the tariffs are currently temporary but will apply from July 4 in case Combined discussions with Chinese authorities did not yield a solution. The bloc said the definitive measures would be imposed within four months of the temporary tax being introduced.

In response to the temporary tariffs, China said Wednesday the move is “blatant protectionism that will create and escalate trade conflictsA spokesperson for the Ministry of Commerce said Beijing was “deeply concerned and very dissatisfied” with the development because it “disrupts and distorts” the global electric vehicle industry.

Joseph Webster, senior fellow at the Atlantic Council’s Global Energy Center, said the EU “seems to be warning” Chinese state-backed SAIC from building production facilities in Europe, if will not face tariffs.

China’s SAIC Group has received a maximum tariff of 38.1%, Webster said. The automaker has a limited footprint on the continent and has not yet chosen a location for the facility. its first European production facility, despite being under consideration for almost a year.” Wednesday report.

“Both BYD and Geely have significant investments in Europe,” Webster said.

In December, BYD committed building a new EV factory in Hungary after opening one electric bus production plant in the country. Geely owns Swedish carmaker Volvo and has begun shifting production of some vehicles from China to Belgium.

Establishing local factories could be the “optimal solution” for Chinese OEMs in the long run, Nomura analysts said on Thursday, adding that these companies have begun looking to expand overseas “to better align with the global auto market.”

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