The expansion in the U.S. market could remain a distant dream for China’s top EV makers, including BYD (NASDAQ:BYDDF), NIO (NYSE:NIO), and Li Auto (NASDAQ:LI). The U.S. is likely to impose a 100% tariff on EVs that are imported from China., the Financial Times reported.
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This potential tariff hike, which marks a significant jump from the current 25%, could pose substantial barriers for these Chinese companies to enter the U.S. market.
Here’s Why the U.S. Could Impose Higher Tariff
The potential rationale for raising tariffs stems from concerns regarding China’s dominant position in EV production and the sector’s overcapacity, which pose threats to American jobs and the domestic auto industry. Earlier, a report from the Alliance for American Manufacturing warned that the influx of low-cost Chinese EVs could have devastating consequences for the entire U.S. auto industry.
These concerns were amplified when BYD unveiled its latest offering, the BYD Seagull EV Honor edition, priced at $9,700, 5% cheaper than its predecessor. This move signals a competitive challenge to American-made electric vehicles, typically priced significantly higher.
The U.S. Market Offers the Next Leg of Growth
BYD emerged as the top seller of EVs globally, displacing Tesla (NASDAQ:TSLA). However, its heavy reliance on the Chinese market indicates a pressing need for international expansion. Moreover, soft demand in the domestic markets and excessive production capacity are forcing Chinese EV makers to aggressively expand globally to accelerate growth.
The U.S., as the world’s second-largest car market, presents a promising growth opportunity for Chinese EV makers. These companies may witness solid demand for their cost-effective models with comparable quality.
Cracking the U.S. Market Is a Challenge
The Chinese EV companies are planning to expand globally. However, they have shown no hurry to enter the U.S. market. This cautious stance is primarily due to the formidable challenges they confront, particularly the requirement for establishing local production facilities.
It’s worth noting that the high U.S. tariffs on Chinese car imports create a significant barrier, making it financially unviable to import vehicles from China. Attempts to mitigate these tariffs by slashing prices would severely squeeze profit margins, presenting survival and competitiveness challenges.
In addition, establishing production plants and distribution networks in the U.S. extends the timeline for these companies to realize their ambition of selling vehicles in the American market.
Against this backdrop, let’s look at analysts’ recommendations on these Chinese EV stocks.
What is the Best Chinese EV Stock to Buy?
TipRanks’ Stock Comparison tool shows that analysts are bullish about BYD and Li Auto stock, as represented by a Strong Buy consensus rating. Meanwhile, analysts remain cautiously optimistic about NIO. However, their average price target suggests that Li Auto stock offers a significant upside potential of over 81% from current levels, making it a compelling bet compared to BYD and Nio.
