BYD Shares Slide Amid Intense EV Price War in China

Chinese electric vehicle giant BYD has seen a significant drop in its share price, falling by up to 8%, following a report of diminishing profits due to a fierce price war within the country's automotive industry. The competitive landscape, characterized by aggressive pricing strategies from rivals such as Nio, XPeng, and Tesla, has put pressure on the company's financial performance.

BYD's recent financial disclosures revealed a 30% decrease in net profit for the April to June quarter, amounting to 6.4 billion yuan ($900 million). The Shenzhen-based automaker attributed this decline to intensified price competition among China's electric vehicle brands. In its statement, BYD highlighted the 'fever pitch' of the current market competition and pointed to industry malpractices such as excessive marketing as contributing factors to market disruption.

The aggressive pricing tactics adopted by major players, including price cuts and subsidies for car dealers, have been met with concern from Beijing. The Chinese government has urged automakers to cease these aggressive discounts to safeguard the economy. Industry estimates suggest that average car prices in China have dropped by approximately 19% over the past two years, currently averaging around 165,000 yuan ($23,100). Despite robust sales abroad, BYD's earnings have fallen short of expectations, underscoring the challenges of maintaining profitability in a highly competitive market.

Prof. Laura Wu from Nanyang Technological University in Singapore noted that the drop in BYD's stock price reflects investor disappointment. She emphasized the difficulty of Beijing's task to curb the price war, given the surplus of players in the EV sector fostered by previous policies. While price reductions may favor consumers in the short term, they risk leading to an oversupply of electric vehicles in China, potentially destabilizing the market in the long run.

Despite the current challenges, some experts advise against viewing BYD's performance too negatively. Judith MacKenzie of Downing Fund Managers highlighted the company's rapid ascent to becoming the world's largest EV maker, surpassing Tesla in annual revenue in 2024. She suggested that a temporary setback is understandable given BYD's meteoric rise and the widespread appeal of its hybrid vehicles in various global markets. The company's experience underscores the broader narrative of China's electric vehicles becoming more competitive in terms of price and quality, though not without potential costs.