Shares of Chinese electric vehicle makers mostly surged on Thursday morning after the European Union announced higher tariffs of up to 38% on Chinese EVs a day earlier.

Hong Kong’s Hang Seng index surged 1.23% at the open, mostly powered by gains in EV stocks.

EV company BYD, who was the top gainer on the HSI, jumped 8% during morning trade. Geely was up about 4%, while counterparts Nio and Li Auto saw their shares climb by 1.75% and 2.67% respectively. State-backed SAIC was down more than 2%.

One analyst pointed out that the EU tariffs were “modest” in comparison to the U.S. duties on Chinese EVs.

On Wednesday, the EU said it would impose extra tariffs on Chinese EV players with a large footprint in Europe. BYD will be subject to additional tariffs of 17.4%, Geely will get an extra 20% duty. SAIC will have to pay additional duties of 38.1% – the highest among the three. This is on top of the standard 10% duty already imposed on imported EVs.

All three manufacturers were sampled in the EU probe, which is ongoing.

Other Chinese EV firms, which cooperated in the investigation but have not been sampled, would be subjected to 21% in extra tariffs while those which did not cooperate in the investigation would face 38.1% in additional duties, the commission said. 

The EU said in a statement it has provisionally concluded that Chinese EV makers benefits from “unfair subsidization,” which resulted in “threat of economic injury” to EU’s EV industry.

“The move is modest compared with the stiff 100% tariffs on Chinese EV imports into the U.S., hiked from 25% last month, by the Joe Biden administration and the 25% provisional duties are in line with market expectations of 20%-25%, in our view,” said Vincent Sun, equity analyst at Morningstar, in a Wednesday note.

Citi analysts on Thursday said the tariff hike is “generally benign” compared to their estimates of 25% to 30%. “The punitive tariffs could be impactful for the EV sector, but would not derail China’s ongoing recovery,” said Citi.

The additional duties come after the EU launched a probe in October. The duties are currently provisional, but will be introduced from July 4 in the event that discussions with Chinese authorities do not result in a resolution, the commission said in a statement. Definitive measures will be placed within four months of the imposition of provisional duties, the bloc said.

In response to the provisional duties, China said Wednesday the move was “blatant protectionism that will create and escalate trade frictions.” A spokesperson for the Ministry of Commerce said Beijing was “deeply concerned and strongly dissatisfied” with the development as it “disrupts and distorts” the global EV industry.

Joseph Webster, senior fellow at the Atlantic Council’s Global Energy Center, said the EU “seems to be warning” Chinese state-backed SAIC to build a production facility within Europe, or else face tariffs.

“China’s SAIC group received the maximum tariff rate of 38.1 percent. The automaker has a limited footprint on the continent, and it has yet to select a site for its first European production facility, despite nearly a year of consideration,” said Webster in a Wednesday report.

“Both BYD and Geely have substantial investments in Europe,” Webster said.

In December, BYD has committed to building a new EV plant in Hungary after opening an electric bus manufacturing plant in the country. Geely owns the Swedish car manufacturer Volvo and has started to move production of some vehicles from China to Belgium.

Setting up local factories could be “the ultimate solution” for China’s original equipment manufacturers in the long run, Nomura analysts said Thursday, adding that these companies have started to seek overseas expansion “in order to better fit into the global auto market.”

– CNBC’s Lim Hui Jie contributed to this report.