Did President Biden just kill the electric vehicle industry? By enacting protectionist trade tariffs on Chinese-made EVs in a bid to boost domestic carmakers, the president may have signed the industry’s death warrant. He certainly put EV stocks at risk.
Biden is quadrupling the tariffs on Chinese EV imports from 25% to 100%, supposedly to protect the U.S. EV industry “from unfairly priced Chinese imports.”
Cut through the word salad the president offered in defense of his actions, and it means U.S. consumers will have to pay more for EVs. But as car buyers clearly stated, they don’t want expensive EVs.
Sales are dramatically slowing in part because of high prices. Keeping them artificially high won’t spur new sales.
Also, the Law of Unintended Consequences will come into play soon. From retaliatory tariffs on U.S. exporters to unrelated industries becoming collateral damage, Biden’s actions will probably have far-reaching negative consequences beyonf putting EV stocks at risk.
EV makers are desperately looking to grow sales in foreign markets, especially in China, because of slowing sales at home.
Hiking the cost of Chinese EVs here will invite a similar response overseas. The damage won’t be immediately apparent, but the three EV stocks at risk below may suffer the most damage from this boneheaded policy decision.
Polestar Automotive (PSNY)
There is actually only one Chinese automaker that sells EVs in the U.S.: Polestar Automotive (NASDAQ:PSNY). Nominally a Swedish car company, Polestar is controlled by Chinese automaker Geely (OTCMKTS:GELYY).
Its U.S. sales are minuscule. While Polestar doesn’t break out by geography how many EVs it sold where, it only has one model for sale in the U.S., the Polestar 2. Citi analysts say just 7,500 vehicles were sold in the U.S.
The vehicle currently sells for under $50,000 and Forbes suggests the price will soar to $80,000 under the new tariff regime, rendering it dead in the water. Polestar was set to release the Polestar 4 in the U.S. next year, but that’s likely not going to happen now.
There were 1.2 million total EVs sold in the U.S. last year and Polestar delivered just 54,600 performance EVs globally in 2023, down substantially from the 60,000 to 70,000 vehicles it expected to sell.
Even if the vast majority of Polestar vehicles were sold in the U.S. they would only be a tiny percentage of the total. It encapsulates just how little benefit the U.S. EV industry will derive from Biden’s tariff actions.
The potential tsunami of damage he may wreck on it from retaliation, however, could be enormous, making this one of the surest EV stocks at risk.
Tesla (TSLA)
While Tesla (NASDAQ:TSLA) makes EVs in China for sale globally, those models are not sold in the U.S. Theoretically it wouldn’t be directly impacted by the tariffs.
However, because Tesla imports its batteries from China’s biggest battery manufacturer Contemporary Amperex Technology, also known as CATL, it might see its supply of low-cost lithium iron phosphate batteries unavailable.
Tesla, of course, is the world’s biggest EV manufacturer (constantly battling with China’s BYD (OTCMKTS:BYDDY) for the title). It sold well over 1.8 million vehicles globally and 670,000 in the U.S., or more than half the total.
Now Tesla is reportedly going to license the battery technology from CATL. The battery maker would supply Tesla with the battery machinery for its Nevada Gigafactory. What the tariffs might do to such agreements is unclear.
What is obvious, though, is that Tesla’s plan for a $25,000 EV might suddenly get a lot more expensive if it can’t get the cheap batteries from China.
It means the investments that were made to deliver a very affordable EV for the masses could be undermined by these protectionist trade policies. As always, it is the consumer that is hurt by such anti-trade rules.
Ford (F)
Ford (NYSE:F) sells a lot of cars in China, both gas-powered and EVs. With 649,000 vehicles sold there last year, it is the automaker’s second-largest market behind the U.S.
China sales actually jumped 31% in 2023, a considerable achievement since Ford’s sales fell in every other market around the world, including the U.S.
Ford is surprisingly the second-largest EV seller in the U.S. with over 20,200 units sold in the first quarter. But the slowdown in the industry, despite big price cuts, is pushing the automaker’s EV plans back.
It recently said a three-row crossover won’t be released next year as originally. Instead, it will come out in 2027. In its place will be more hybrid vehicles.
The company, though, is another EV maker that relies heavily upon CATL for its batteries to keep prices affordable. Without access to the batteries, its dream of make its EV division profitable could go up in smoke.
While it is building a battery factory in Michigan, that is not slated to become operational until 2026. That is too far into the future to help with the immediate threat tariffs represent.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.