The European Union has introduced new tariffs on electric vehicles manufactured in China, a move that could pose challenges for Chinese automakers. However, companies like Warren Buffet-backed BYD (OTC:BYDDF) (OTC:BYDDY) are expected to remain competitive, according to experts.

What Happened: The European Commission announced on Wednesday that it will impose provisional tariffs on Chinese EVs from July, citing China’s “unfair” use of state support. Definitive measures are expected to be confirmed by year-end, reported by Nikkei Asia on Thursday.

State-owned SAIC Motor faces the highest additional tariff of 38.1%, while BYD has received the lightest rate at 17.4%. Geely Automobile Holdings faces a 20% additional tariff. These tariffs are on top of the EU’s existing 10% tariff on Chinese EV imports.

However, BYD’s shares in Hong Kong surged nearly 9% at one point on Thursday morning following the news.

“BYD’s cost advantage is high enough that they can profitably export even at a 35% tariff,” said Eugene Hsiao, head of China autos at Macquarie Capital.

Buffett’s Berkshire Hathaway Inc. is an investor in BYD. It acquired a 20.49% stake in the company’s Class H shares with an investment of $230 million in 2008. However, it has reduced its stake over time and now holds approximately 87.6 million BYD H Shares, equivalent to a 7.98% stake.

The imposition of tariffs on Chinese EVs by the European Commission has broader implications for the global automotive industry. This move comes amid a backdrop of increasing trade tensions between China and the European Union. China has vowed to “firmly safeguard” its interests against these new tariffs, indicating potential retaliatory measures.

“Certainly the fear from the Europeans is that the Chinese will retaliate, and the Germans are the most exposed. I’m sure there will be some retaliation, but will it be commensurate? I think that remains to be seen,” said Andy Mok, a senior research fellow at the Center for China and Globalization.

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Why It Matters: Despite the new tariffs, Chinese EVs are expected to remain attractive options for European drivers, according to Vicent Sun, an equity analyst at Morningstar. The new tariffs could also accelerate the localization plans of Chinese EV makers in the EU.

However, the new tariffs come amid concerns that the demand for EV materials could fall. Umicore, a major producer of battery materials, has warned about a sharp decline in demand for EV materials and reduced its profit forecast for 2024.

Moreover, the tariffs have already prompted significant strategic shifts among automakers. For instance, Volvo Car AB has begun relocating its EV production from China to Belgium to mitigate the impact of these tariffs.

The broader impact on Chinese EV stocks is also noteworthy. Companies like Nio (NYSE:NIO), Li Auto (NASDAQ:LI), and XPeng (NYSE:XPEV) are likely to face significant challenges as a result of these tariffs, which could escalate to about 35%, significantly lower than the 100% duties applied by the U.S.

Price Action: BYDDY’s shares closed 1.43% lower on Thursday at $57.01, while BYDDF shares closed 1.80% lower at $28.38, according to Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote