BYD Shares Drop Over 5% as Chinese EV Maker Cuts Prices by Up to 35%

BYD, the direct competitor of Musk-owned Tesla, experienced a sharp decline of nearly 6% on the Shenzhen Stock Exchange after the Chinese EV maker announced double-digit price cuts of as much as 35%. Investors, quite evidently, didn't take this news well as excessive discounting raised concerns about heightening competition in the industry.

Meanwhile, BYD was not the only Chinese EV maker to witness subdued investor interest. Shares of other peer EV companies, including Li Auto Inc., Xpeng Inc. and Geely Automobile followed suit and declined on the bourses.

BYD has implemented price cuts on 22 of its models, including both EVs and plug-in hybrids, until next month, as per a report by Bloomberg. Undoubtedly, EV sales have witnessed a sharp upward trajectory, however, growth has remained tepid. While heavy discounting did add to the overall woes of lagging growth, China's broader economic pain made things worse for the EV industry.

Dealership inventories rose to 3.5 million cars last month, equivalent to 57 days of supply. This figure marks the highest level since December 2023, according to recent data from the China Passenger Car Association. Among BYD’s latest price adjustments, the Seagull hatchback's cost was reduced by 20% to 55,800 yuan ($7,780). The most significant cut came for the Seal dual-motor hybrid sedan, which dropped by 34%, or 53,000 yuan, bringing its new price to 102,80.0 yuan.

“While some of these discounts have been in place since April, the official announcement sends a strong signal of how tough the end market is,” Morgan Stanley analysts including Tim Hsiao reportedly said in a note.

The recent price cut announcement by BYD will further intensify the competition in the industry, as peers will in-turn implement similar cuts on their model. This, eventually, will take a toll on the revenue levels of EV makers. Citi Research is already expecting the same to happen. “We anticipate peers to follow BYD’s price cut,” analysts at Citi Research said in a note, as reported by Bloomberg.