Although the potential 100% US tariff hike on Chinese electric vehicles (EVs) appears aggressive, its direct impact on China's EV exports “should be limited,” Morgan Stanley analysts said in a Monday note.
According to recent reports, the Biden administration plans to increase tariffs from 27.5% to 100%, alongside existing IRA subsidy exclusions, to deter Chinese EVs from entering the US market. As per the China Association of Automobile Manufacturers (CAAM), China shipped fewer than 75,000 vehicles to the US in 2023, representing less than 2% of its total vehicle exports, with major OEMs like BYD (SZ:002594) not planning to enter the US market due to rising protectionism.
“While the direct volume impact from the US's potential tariff hike appears limited, we would view it as illustrative of growing protectionism in the West, where tariffs and other related steps could arrive sooner and at a greater scale than we previously anticipated,” Morgan Stanley analysts said.
In the meantime, key questions remain about the effect on Chinese EV/components imported from Mexico and whether the EU and NAFTA regions will follow the US with similar tariffs. Notably, Mexico is China's second-largest vehicle export destination, with 100,000 units shipped in Q1 2024, according to China Customs.
Going forward, Morgan Stanley believes the potential tariff hike by US government “will spur Chinese OEMs to accelerate their plans to transplant/localize production overseas, and seek partners/JVs to better navigate through heightened protectionism in the West.”
Although ASEAN, LATAM, and Middle East markets appear more favorable for Chinese EV exports, Chinese OEMs and parts makers are likely to increase overseas capital expenditure in the next 2-3 years, analysts noted, a move aimed at localizing production abroad to hedge against further protectionism.