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BYD Seagull small electric vehicle was exhibited at the 20th Shanghai International Automobile Industry Exhibition held at the National Exhibition and Convention Center (Shanghai).
Video Visual China Group | Getty Images
Shares of Chinese electric vehicle makers started the new year in reverse gear, with fierce competition and continued price wars weighing on automakers’ profitability, while overall market sentiment remains weak.
Nio and Xiaopeng’s Hong Kong-listed shares have plunged more than 18% and 16%, respectively, while Li Auto has fallen 12% since the beginning of the year. BYD and Zhejiang Leap Motor fell nearly 2.5% and 12% in 2024, respectively.
“We expect competition within the domestic market to remain intense, putting pressure on pricing and profitability,” Bernstein analysts said in a report on China’s EV industry earlier this month.
Morgan Stanley also highlighted competition concerns in a note on Wednesday, saying, “Investors remain cautious as China’s auto market got off to a shaky start to the year amid continued competition and macro uncertainty. ” he said.
In mainland China, passenger EV sales growth rate fell to 28% in the third quarter of 2023 from 108% in the same period last year, according to data from the China Automobile Manufacturers Association cited by Fitch Ratings.
The slowdown in growth will become even more severe in 2024, according to Fitch Ratings. “Amid economic uncertainty, domestic passenger car demand in China is expected to increase moderately in 2024 to nearly 22 million units,” Fitch Ratings said.
The latest slowdown warning comes as automakers strive to increase vehicle deliveries. Xpeng delivered a record 20,115 EVs in December, an increase of 78% year-on-year, and Q4 deliveries exceeded 60,000 for the first time. Li Auto delivered 131,805 vehicles in the fourth quarter, an increase of 184.6% year over year.
BYD overtook Tesla in the fourth quarter, selling more battery-powered vehicles than its U.S. rival and becoming the world’s best-selling EV brand.
Competition is intensifying in China’s EV market, with BYD, Li Automobile, and Geely Automobile achieving their sales targets for 2023, but Xpeng and Nio falling short.
“The competitive environment will become more competitive and pricing pressures will increase. EV demand is expected to remain resilient, but the industry is facing three major challenges on the supply side: overcapacity, new model launches and “Xiaomi will face challenges from the rise of new technology entrants such as Weibo,” Bernstein said in the note, noting increased competition.
More than 100 new EV models are expected to be launched in China in 2024, HSBC China auto analysts said in a December report.
Recently, several domestic EV players such as Nio, Huawei, and Zeekr have announced new EVs, and Xpeng launched its latest 7-seater large EV X9 on January 1st, increasing competition. Even Chinese consumer electronics company Xiaomi plans to introduce its first EV in the increasingly competitive market.
Tesla cut prices multiple times last year, including in China, and domestic rivals BYD, Nio, Li Auto and Xpeng followed suit.
“As a result, we expect the market to consolidate, with niche small EV producers in need of development capital merging with or being acquired by more powerful market participants,” Fitch Ratings said in November. “
Profitability will come under further pressure as Chinese EV makers seek to win over customers through new products and lower prices. In fact, Morgan Stanley warns that 2024 “will be a tougher year as China remains relatively saturated.”
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