Al Root

Shares of Chinese electric-vehicle maker, and fierce Tesla competitor, BYD soared in overseas trading Friday. There are a couple of reasons for the gains. One just might be the escalating U.S.-China trade war.

BYD stock was up 7.2% in overseas trading on Friday, while S&P 500 and Dow Jones Industrial Average futures were up 0.4% and 0.3%, respectively. Futures were volatile after China announced 125% tariff rates on U.S. imports.

That matches rates on Chinese imports to the U.S. The U.S. and China, the world's two largest economies, are involved in tit-for-tat trade escalation that promises to slow growth and raise prices for consumers around the globe.

It could also change the future of the auto industry. Tesla is no longer taking orders for its Model S, X, or Cybertruck in China, according to its website. Tariffs are the obvious reason. Tesla didn't respond to a request for comment about orders.

The direct impact of Chinese tariffs on Tesla is small. Tesla only sold about 13,000 Models S, X, and Cybertruks globally in the first quarter, about 4% of total sales. And the move makes sense. Tesla would have to cut prices by roughly 45% to keep the retail price to a Chinese car buyer flat. That's a recipe for Tesla to lose tens of thousands of dollars per car.

Tesla's very logical decision also means less competition for BYD. Today, it's the largest seller of all-electric cars in China and around the globe, and Tesla is second.

The shift represents one potentially unintended consequence of a trade war. There are others. The U.S. has implemented 25% import tariffs on all cars from everywhere, including Europe. The EU has considered retaliating. Further escalation between the U.S. and Europe opens the door for more BYD EVs in Europe.

BYD doesn't need much help. It has exported about 525,000 cars over the past 12 months, up almost 75% year over year.

BofA Securities analyst John Murphy said it's even possible high tariff rates could speed the introduction of Chinese cars in the U.S.

American auto makers, historically, have tended to abandon lower-end segments of the market as costs rise, he said. (There are no more Saturns and no more Ford Tempos.)

In March, only 26 models had average transaction prices below $30,000, according to data provider Cox Automotive. "Vehicles priced below $30,000 are highly vulnerable to the new tariff policy adopted by the White House," said Cox.

What's more, lower-cost vehicles tend to be assembled outside America, including the Chevy Trax, Honda HR-V, Kia Soul, Mazda 3, and Nissan Sentra, and the now-discontinued Mitsubishi Mirage. The Mirage is the only vehicle in the U.S. with an average transaction price under $20,000, added Cox.

The Chinese car invasion is years away. The country's auto makers have to build plants and supply chains in the U.S. Still, that's a risk investors, and politicians, should think about.

Also helping BYD shares is a target price hike from Daiwa analyst Kelvin Lau. He took his target from 431 Hong Kong dollars to HKD 484 (from around $55.56 to $62.40), citing the prospects for international expansion. Lau rates the EV maker's shares Buy.

The average analyst price target for BYD stock is about HKD 461, according to FactSet, about 25% higher than recent levels.

Through Friday trading, BYD stock was up about 38% so far this year.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 11, 2025 09:55 ET (13:55 GMT)

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