One of China’s mainline electric vehicle (EV) manufacturers, Nio (NYSE:NIO), saw its shares dip only slightly today. Yesterday, the European Union announced that it would impose tariffs on EVs imported from China of up to 38%, according to The New York Times. The move follows President Joe Biden’s quadrupling of U.S. tariffs on Chinese EVs to 100%. In the trailing five sessions, NIO stock lost 7% as shareholders digested the geopolitical framework. Today, the stock is down about another 1%.
Per the NYT, the tariffs open “another front in escalating trade tensions with China amid growing fears about a glut of Chinese green tech goods flooding global markets.” A primary challenge facing both European and American EV manufacturers is that upstart Chinese companies are purely focused on electrification, enabling greater efficiencies. Also, they enjoy lower cost bases than their Western counterparts.
Still, the matter isn’t a slam dunk against NIO stock. Unlike U.S. carmakers, the NYT points out, “several of their European counterparts are deeply entwined in the Chinese market, and their cars produced there will also be subject to the higher tariffs.” Notably, many European automakers — including Mercedes-Benz (OTCMKTS:MBGYY) — criticized the EU’s decision.
NIO Stock Caught in an Awkard Crossfire
On paper, the EU decision seemingly aligns with a rational basis. According to The Guardian, “[t]he tariffs are aimed at countering the alleged state support handed to China’s car manufacturing industry, which has allowed exported vehicles to be sold at cheaper prices than those of global rivals.”
In addition, the news agency states that the levies follow “a nine-month investigation into alleged unfair state subsidies into Chinese battery electric vehicles (BEVs) and the level of the tariffs differ depending on the brand.”
Theoretically, the tariffs will start on July 4. The action calls for differing magnitudes of levies depending on the brand being imported into the EU. However, Chinese companies will have an opportunity until the aforementioned date to provide evidence that challenges the EU’s findings. Following such a procedure, the rates could potentially be adjusted.
Still, the market likely hasn’t eviscerated NIO stock because of the awkward nature of the crossfire. While Europe has a vested interest in protecting its EV industry, fears of retaliation ring loudly. Chinese foreign ministry spokesperson Lin Jian stated that the tariffs will damage China-EU economic cooperation and disrupt global supply chains.
With European automakers also voicing concerns, this latest development presents a huge wrinkle in an already difficult environment for EVs.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
