A Tesla-inspired price war among electric vehicle makers in China is taking a toll on even the most resilient players, as evidenced by BYD’s staggering $18 billion drop in the past month.
The U.S.-listed shares of the electric-vehicle maker that’s backed by Warren Buffett have declined 14% since the start of February, underperforming Tesla’s 9% advance. In comparison, a gauge of global EV makers fell 9% over the same period.
Traders are growing wary of BYD’s prospects after the firm’s dealers slashed prices of some models to boost sales. The change in sentiment underscores the wave of caution that’s sweeping the industry following moves by Nio and XPeng to follow Tesla’s lead in lowering prices as demand slows. Buffett’s steady offloading of shares that’s now topped the $500 million mark is also weighing on the stock.
“A gradual industry shift is underway as excessive price cuts can lead to buyers holding back, awaiting even lower prices, while also having an excessively negative impact on margin for all players,” said Robert Mumford, an investment manager at GAM Hong Kong. “Lower input prices to date are not likely to offset a negative hit to margins.”
Investors are now sifting through the pile of stocks to determine the likely winners and losers from the price war, Mumford said. In this respect, some say Shenzhen-based BYD may hold up relatively well as it has better pricing power and controls most of its supply chain by producing its own chips and batteries.
The company also is showing strong volume momentum, reporting 85% year-on-year growth to more than 190,000 units in February, after a record sales year in 2022. Analysts forward earnings estimates have risen around 20% since December.
For Citigroup analysts Jeff Chung and Beatrice Lam, BYD will continue to gain market share over the long-term as competitors burn through cash to increase their scale, leading to market consolidation and “intensified competition.”