Stocks to avoid as EU slaps Chinese EVs with tariffs

Key points

• The EU has imposed potentially hefty tariffs on Chinese-made EVs.

• The decision shortly follows the announcement of major stimulus measures by the Chinese government.

• This could create a confusing picture for Chinese EV investors who have already priced in the stimulus measures.

The decision could counteract stimulus measures announced by the Chinese government in September

The European Union has officially voted to impose tariffs of up to 45% on electric vehicles (EVs) built in China.

The EU’s long-awaited decision could significantly dent the bottom-line results of China-based carmakers such as Nio (NYSE:NIO), BYD (OTC:BYDDY), Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV).

China-listed stocks got a huge boost in September when the nation’s central bank, the People’s Bank of China (PBOC), announced major stimulus measures. The move saw EV stocks and other stocks in China that were previously deemed “uninvestable” become hugely popular on Wall Street.

However, the news coming out of Europe may somewhat counteract the stimulus announcement from the PBOC. This could be problematic for investors who have already priced in vast post-stimulus growth potential for Chinese EV makers.

Don’t celebrate stimulus impact too soon

It’s understandable that investors in Nio, BYD, Li Auto, and XPeng added to their share positions in the wake of China’s stimulus announcement. After all, China’s ultra-accommodative monetary policy could spur buying activity in the automotive sector and elsewhere.

“While it’s good to have monetary easing measures that are accommodative, more needs to be done in order to help solidify fourth quarter growth,” said Ken Wong, Asian equity portfolio specialist at Eastspring Investments Hong Kong Ltd.

In a similar vein, Jeffrey Kleintop, Charles Schwab’s chief global investment strategist, isn’t fully convinced that China’s announced stimulus measures announced this week will solve China’s economic challenges. Kleintop warned that the “jury is still out” on that issue, so overeager investors may want to ease up on their China EV manufacturer stock purchases.

No need to hit the Gas pedal now

It’s not yet determined how long the new European tariffs will last or how high they will go, percentage-wise. Until there’s more clarity on these matters, the likely financial impact on China-based EV manufacturers remains unclear.

Besides, there’s room for NIO, BYD, LI, and XPEV stocks to fall after the recent stimulus-fueled rally. Consequently, the prudent move for anxious China EV maker stock traders may be make no move at all right now and wait for more details on Europe’s tariffs before making any assessments or share purchases.