China's EV stocks start 2024 in reverse gear as price wars pressure profitability

A BYD Seagull small electrical automotive is on show through the twentieth Shanghai International Automobile Industry Exhibition on the National Exhibition and Convention Center (Shanghai)

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Shares of Chinese electrical automotive makers have began the brand new yr in reverse gear, as intense competitors and persevering with price wars pressure the profitability of automakers, whereas the general market sentiment stays weak.

Hong Kong-listed shares of Nio and Xpeng have plummeted greater than 18% and 16%, respectively, whereas Li Auto has misplaced 12% thus far this yr. BYD and Zhejiang Leapmotor have shed practically 2.5% and 12%, respectively, in 2024.

“We count on competitors inside the home market to stay intense and put pressure on pricing and profitability,” Bernstein analysts stated in a report on China’s EV business earlier this month.

Morgan Stanley additionally highlighted competitions issues in its notice on Wednesday: “Investors stay cautious as China’s auto market has had a unstable start to the yr as competitors and macro uncertainties persist.”

In mainland China, passenger EV sales growth fell to 28% in the third quarter of 2023, from 108% in the identical interval a yr earlier, in keeping with China Association of Automobile Manufacturers knowledge quoted by Fitch Ratings.

The development slowdown will deepen in 2024, according to Fitch Ratings. “We count on China’s home passenger automotive demand to extend modestly in 2024 to almost 22 million items amid financial uncertainty,” stated Fitch Ratings.

The slowdown warning comes at a time carmakers have been striving to spice up deliveries. Xpeng delivered a record 20,115 EVs in December, 78% larger from a yr earlier, whereas its fourth-quarter deliveries exceeded 60,000 for the primary time. Li Auto’s fourth-quarter deliveries stood at 131,805, up 184.6% yr over yr.

BYD overtook Tesla as the world’s top-selling EV model in the fourth quarter, promoting extra battery-powered autos than its U.S. rival.

Competition and price wars

Competition is intensifying in the Chinese EV market, with BYDLi Auto and Geely assembly their gross sales targets for 2023, and Xpeng and Nio falling short.

“Competitive panorama shall be more difficult, and pricing pressure to ensue. Although EV demand is ready to stay resilient, the business will confront three main challenges on the provision facet: overcapacity, new mannequin launches and the rise of latest tech entrants such as Huawei and Xiaomi, which level to rising competitors,” Bernstein stated in its notice.

In 2024, greater than 100 new EV fashions are anticipated to launch in China, HSBC China autos analysts stated in a December report.

Several home EV gamers such as Nio, Huawei and Zeekr have not too long ago revealed new EVs, with Xpeng launching its newest X9 massive 7-seater EV on Jan. 1, intensifying competitors. Even Chinese client electronics firm Xiaomi is set to launch its first EV in an more and more aggressive market.

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Last yr, Tesla conducted multiple rounds of price cuts, together with in China, with home rivals BYD, Nio, Li Auto and Xpeng following swimsuit.

“We count on the market to consolidate as a outcome, with smaller area of interest EV producers that require capital for improvement to merge with or be acquired by stronger market members,” stated Fitch Ratings in November.

As Chinese EV makers attempt to draw clients by newer choices and decrease costs, their profitability will come underneath extra pressure. In reality, Morgan Stanley has warned that 2024 shall be “harder as … China stays comparatively saturated.”

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