The European Commission plans to impose an additional tariff of 17.4% on imports of BYD's battery electric vehicles (EVs) from China starting next month, which represents the lowest rate among Chinese EV manufacturers.

The shares of BYD then rose sharply as investors are optimistic that the world's largest electric vehicle manufacturer will maintain its competitiveness despite the European Union's planned additional tariffs. The company's Hong Kong-listed shares increased by up to 8.8% on Thursday, leading the gainers in the Hang Seng Index. BYD's A-shares in Shenzhen recently rose by 4.2%.

The significant price gains followed the announcement by the European Commission that it plans to impose additional tariffs on imports of BYD's battery-electric vehicles starting from July 4th, unless talks with Chinese authorities lead to an effective solution. These tariffs are in addition to an existing 10% tariff on all Chinese electric vehicles.

The increased tariffs come at a time when Chinese EV manufacturers have ramped up their exports in response to an intense price war and a saturated market in China. However, analysts expressed little concern about the higher tariffs, as Chinese EV manufacturers are eager to localize production in Europe. Some are also diversifying their overseas expansion through exports to Southeast Asia, Australia, Brazil, and Mexico.

“For BYD, this is the best scenario compared to other Chinese automakers,” said Nomura analyst Joel Ying. The company could continue to enjoy strong gross margins despite the additional tariffs, thanks to higher margins on cars sold in Europe compared to those sold in China.

BYD is the only player that, in our opinion, could continue to operate profitably with an import model, thanks to its structural cost advantage," wrote Bernstein analysts led by Eunice Lee in a note.

Analysts are also positive about BYD's localization efforts in Europe, including plans for a factory in Hungary that is expected to start production within the next three years.

The planned additional tariffs were largely in line with market expectations, although the 38.1% tariff for state-owned SAIC Motor was a surprise. SAIC's MG Motor, which sold two out of three cars manufactured in China in Europe last year, is expected to face the biggest challenge, said CCB International analyst Qu Ke.

The inventory at MG dealers will move somewhat slower due to the narrowed price difference with local competitors," said Qu. In Shanghai, SAIC's shares fell by 1.55% on Thursday.

Shares of Geely Automobile, which are subject to an additional tariff of 20%, rose by 2.1% in Hong Kong, surpassing the Hang Seng Index increase of 0.4%.

Other Chinese automobile manufacturers that cooperated with the EU investigation, such as XPeng, NIO, and Great Wall Motor, will have to pay an additional tariff of 21%, while those that did not cooperate will be subjected to an additional tariff of 38.1%.

In contrast to the USA, the EU customs has not shut the door on Chinese electric vehicle manufacturers,” said Daiwa analyst Kelvin Lau, adding that the additional tariffs of 17% to 21% are “very mild.”