A Tesla-inspired price war among makers of electric vehicles in China is taking a toll on even the most resilient players, as evidenced by BYD's $18 billion drop in market valuation over the past month.
Shares of the United States-listed EV company 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 increase sales. The change in sentiment underscores a wave of caution that's sweeping the industry after moves by automakers Nio and XPeng to follow Tesla's lead in lowering prices as demand slows. Buffett's steady offloading of shares that has 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 BYD, based in Shenzhen, China, is expected to hold up relatively well because 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."
ANOTHER JAB
Over the weekend, Tesla Inc. again reduced prices of its more expensive models, days after Elon Musk said price cuts earlier this year had piqued interest in the company's EVs.
The Model S and X now start at $89,990 and $99,990 in the United States, down a respective 5.3% and 9.1%, according to Tesla's website. The company lowered prices of the higher-performance Plaid versions of each vehicle by 4.3% and 8.3%.
At $109,990, Plaid iterations of the S and X now cost $26,000 and $29,000 less than they did in early January, respectively.
Musk said last week that desire to own Teslas was "indistinguishable from infinite" and that demand will "go crazy" as the company makes its cars more affordable.
Reducing prices of S and the X models again suggests that the vehicles have gotten less of a boost from cuts the company made across its lineup seven weeks ago.
A BYD Co. Atto 3 displayed at the India Auto Expo 2023 in Noida. MUST CREDIT: Bloomberg photo by Anindito Mukherjee