Shares in Chinese electric vehicle (EV) companies fell Friday after reports revealed that the Canadian government is considering new tariffs on Chinese-made EVs to align with similar measures taken by the US and European Union.
While final decisions have yet to be made, officials suggest that public consultations on the proposed tariffs, which would impact Chinese EV imports to Canada, are likely to be announced soon, Bloomberg News reported.
US-listed shares of Nio (NYSE:NIO) and Li Auto (NASDAQ:LI) dropped 1.4% and 1.5% in Friday’s premarket, respectively.
Canada Prime Minister Justin Trudeau faces growing pressure domestically and internationally to follow the lead of US President Joe Biden’s administration, which unveiled a plan in May to nearly quadruple tariffs on Chinese EVs, raising them to 102.5%. Similarly, the European Union (EU) announced last week its intention to hike tariffs on Chinese EVs, with some levies potentially reaching 48%.
Commenting on this development, Morgan Stanley analysts said Canada’s potential tariffs are more of a “symbolic and preemptive move from the West to limit China EV's expansion before it starts to scale.”
“Plus, Canada houses production from US OEMs like GM, Ford, and could be a strategic location to expand their battery supply chain given its lithium resources,” analysts added.
“Ultimately, production localization holds the key to entering developed markets; hence emerging markets (ASEAN, LaTAM, Middle East) appear more favorable for China EVs near term.”
In the meantime, analysts said they will monitor other NAFTA regions, particularly Mexico, to see if these countries decide to follow the US in raising EV tariffs.
Tariff hikes on Chinese EVs come amid growing concerns among Western democracies about China’s overproduction of key goods, which is viewed as an attempt to dominate global supply chains and undermine local industries.
Chinese companies like BYD have been aggressively expanding into global markets, making battery-electric vehicles a significant focus of these tariff plans.