EV Price Wars By Tesla And BYD Sends Chinese Auto Stocks Nosediving
Traders have been abandoning Chinese auto stocks as an EV price wars spread across the whole industry. BYD slumped 11 percent in Hong Kong last week, while SAIC, China’s biggest carmaker, tumbled 6.7 percent.
Source: South China Morning Post
Traders have been abandoning Chinese auto stocks as an EV price wars started by Tesla and BYD spread across the whole industry, a sign of weak consumer sentiment amid pessimism about the pace of economic recovery. BYD, the world’s biggest electric-vehicle (EV) maker by sales, slumped 11 percent in Hong Kong and 7.8 percent in Shenzhen last week. SAIC, China’s biggest carmaker, tumbled 6.7 percent in the same span in Shanghai.
The country’s main trio of electric-car makers, Li Auto, Nio and Xpeng shed between 2.6 percent and 15 percent in Hong Kong. The EV price wars intensified last week as premium carmakers like BMW and Mercedes-Benz Group and local players such as SAIC and Guangzhou Automobile got in on the act.
For a clearer idea of the EV price wars, the biggest cut came from French automaker Citroen. It chopped 40 percent off the price of its C6 model to about RMB 130,000 (US$18,660) in central Hubei province, according to local media. Tesla and BYD had already shaved between RMB 20,000 and 46,000 off their vehicles.
“It’s a sign of weak consumer confidence. Consumers won’t spend, because the economic recovery is weaker than expected,” said Wang Zheng, Chief Investment Officer at Jingxi Investment Management in Shanghai.
The dive in auto stocks is a setback for the country’s leaders, who have made the revival of household consumption a top priority this year, as set out in the government work report addressed to the National People’s Congress in Beijing. While economists from UBS to Goldman Sachs expect China’s growth to accelerate this year after the full reopening of international borders, recent key economic data suggest the the recovery will take time.
Both imports and exports declined in February, while a deflation in factory-gate prices deepened. Sales of passenger cars fell 15 per cent from a year earlier in the first two months of 2023, according to data from the industry association.
“Price cuts by major carmakers including Tesla have sidelined more potential buyers as they expect more aggressive cuts to be on the way,” said Chen Siqi, an analyst at CSC Financial in Beijing.
Another reason for the low sales is that some motorists who would otherwise have bought a car this year may have brought forward their purchase to the end of last year because they feared tax breaks and EV subsidies would be scrapped in 2023. China sold 6.9 million EVs last year, almost double the number in 2021, according to the industry data.
Electric cars, one of the few fast-growing sectors, will be less of a growth driver for auto sales in China this year, because shrinking fiscal revenue makes it difficult for the government to extend its subsidies on purchases, according to Iris Pang, Hong Kong-based Chief Economist for Greater China at ING.
“New EVs will be less supportive of sales growth this year,” she said in a note on February 28. “There has been no indication that there will be a renewal of the cash subsidies on EVs. The fiscal burden has risen and the government may not want to spend on subsidies to boost consumption when the economy is recovering.”
Cuts in such subsidies ranged from 10 percent to 30 percent in the three years to 2022, and no budget has been allocated so far this year, according to the analyst. Pang expects growth in vehicle sales in China to slow to around 5 percent this year from 10 percent in 2021.
“The strength of the recovery in the auto market is slower and weaker than expected,” said Lu Jiamin, an analyst at Cinda Securities in Beijing. “That’s because of macro factors; the economic recovery is still at a nascent stage.”
Just last month, Tesla famously slashed its prices to make their vehicles more affordable. Unfortunately, it failed to outdo BYD in China as the latter has American investment titans’ support. Charlie Munger famously proclaimed having Berkshire Hathaway pump in capital to support BYD is one of his best decisions.
He was quoted at a meeting with Daily Journal Corporation, “I have never helped do anything at Berkshire that was as good as BYD. BYD is so much ahead of Tesla in China. It’s almost ridiculous.”
Munger pointed out that BYD increased the price of some of its more popular models, while Tesla had to offer discounts for its cars. Expiring consumer subsidies for electric vehicles may be pushing car companies to slash prices to retain customers.
The Chinese government is still actively offering subsidies to promote electric vehicle adoption, including that for infrastructure. The latter is for companies that install and operate public charging stations. Nonetheless, it is important to note there is also a cap in China’s subsidy – except it has not reached its limit, or is it near?
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