Please ensure Javascript is enabled for purposes of website accessibility

Why MP Materials, Canoo, and Nikola Stocks All Just Popped

By Rich Smith - Jun 8, 2021 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Higher tariffs on Chinese rare earths could be coming down the pike.

What happened

Shares of MP Materials (MP 0.56%), a miner of rare earth elements, jumped 10.5% today at noon on the New York Stock Exchange after media reports surfaced regarding potential U.S. tariffs on imported rare earth magnets from China.

Simultaneously, the shares of Nikola Corporation (NKLA 2.09%), a company that wants to build long-haul trucks powered by batteries and fuel cells, and Canoo (GOEV 13.83%), an electric-vehicle (EV) start-up, also jumped up 4.5% and 28.6%, respectively. What's the connection?

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

As the Financial Times reports this morning, "[T]he Biden administration is considering an investigation into whether imports of rare earth magnets made largely in China pose a national security threat that could warrant the imposition of tariffs."

In this case, the Biden Administration isn't considering levying tariffs to punish anything "bad" that China has done, but rather, it's a policy choice. By raising the effective cost of importing rare earth metals, the effect would be to allow U.S. rare earth producers to charge higher prices themselves, reaping windfall profits -- and thus encouraging the growth of a domestic U.S. rare earth industry.

In so doing, the Administration would strengthen national security by making both U.S. companies -- and the U.S. military -- less dependent on imports of Chinese rare earth materials from abroad.

Now what

As a miner of these materials, MP would be an obvious beneficiary of higher tariffs on Chinese imports. But as companies that use rare earth metals in their products (specifically, rechargeable batteries), Nikola and Canoo would likely be expected to suffer from the prospect of higher input costs on their EVs.

And yet they aren't. Their stocks are going up, too.

As it turns out, the Financial Times says that part and parcel of the plan to raise tariffs on rare earth metal imports is a "10-year plan to develop a domestic supply chain for lithium batteries, which are critical for electric vehicles, and will immediately use $17bn in lending facilities to support that effort."

On the one hand, the Biden Administration may be taking away from EV companies by raising tariffs on the products they need -- but it's also giving, in the form of $17 billion in government subsidies. And that sounds like good news, not just for MP Materials, but also for Nikola and Canoo.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MP Materials Corp. Stock Quote
MP Materials Corp.
MP
$38.02 (0.56%) $0.21
Nikola Corporation Stock Quote
Nikola Corporation
NKLA
$6.83 (2.09%) $0.14
Canoo Holdings Ltd. Stock Quote
Canoo Holdings Ltd.
GOEV
$4.28 (13.83%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.