^{Photo: Bloomberg News}

Chinese EV Stocks Suffer as Competitive Tensions and Regulatory Pressure Rise

Shares of China’s top automakers continued their downward spiral on Tuesday, as mounting concerns over a potential price war and increased scrutiny from regulators sent shockwaves across the electric vehicle (EV) sector.

This marks the second straight day of declines for these companies, rattling investor confidence and signaling deeper volatility ahead in one of the world’s fastest-growing EV markets.

BYD Leads the Drop After Aggressive Price Cuts

BYD, the country’s largest EV maker by sales volume, saw its Hong Kong-listed shares plunge another 4% on Tuesday, building on Monday’s steep 9.2% drop. The downturn follows BYD’s announcement on May 23 that it would slash prices across 22 of its electric and plug-in hybrid models in a strategic move aimed at boosting sales before the end of June.

Among the most dramatic price cuts was the Seagull hatchback, now priced at 55,800 yuan ($7,780)—a 20% reduction. Even more significantly, the Seal dual-motor hybrid sedan saw a 34% price drop, bringing its cost down to 102,800 yuan ($14,330). These adjustments come on top of earlier price cuts this year for popular models like the Han sedan and Tang SUV, which saw reductions of 10.35% and 14.3%, respectively.

Victor Sun, a senior equity analyst at Morningstar, cautioned that BYD’s margins would likely face short-term pressure, stating: “This is clearly a sales-driven move, and in our view, BYD shares are currently overvalued.” However, he noted that the company could potentially mitigate the impact through scale and continued reductions in battery costs.

Sector-Wide Selloff Reflects Broader Investor Anxiety

BYD wasn’t alone in its struggles. Other major Chinese automakers followed suit:

• Geely Automobile: Down 3.16%
• Great Wall Motor Co: Fell 1.1%
• Li Auto: Lost 2.37%
• XPeng: Declined 1.73%

This collective retreat points to broader investor unease, driven by fears that intensified price competition will compress profit margins across the board—despite solid sales performance in Q4 2024.

Regulatory Pressure Adds Fuel to the Fire

Adding another layer of complexity, Reuters reported that China’s Ministry of Commerce is now investigating sales practices within the industry, particularly the use of “zero-mileage” cars. These vehicles are allegedly marked as sold by automakers to inflate performance numbers but are then resold on the secondhand market, potentially misleading investors and consumers alike.

Regulatory discussions are currently underway with both automakers and industry groups, suggesting that deeper scrutiny and possible compliance changes may be on the horizon.

Dealership Traffic Surges, but Profitability at Risk

Despite the turmoil in stock prices, there are signs of short-term demand stimulation. Analysts at Citi noted a 30% to 40% spike in dealership footfall for BYD between May 24 and 25, compared to the previous weekend, crediting the surge to recent price adjustments.

Still, Morningstar’s Sun warned that high retail discount levels remained persistent through Q1 2025 and that a prolonged price war could threaten the sector’s profitability.

Citi, however, remains cautiously optimistic, arguing that new energy vehicle (NEV) makers pricing under 200,000 yuan ($27,900) are likely to see strong sales growth. “The competition in this price band is less intense,” they wrote in a May 26 note. “We don’t see immediate market share erosion for competitors, at least not yet.”

What’s Next for the Chinese EV Sector?

As China remains the global epicenter for EV innovation and scale—home to nearly 60% of global EV sales in 2024—the stakes in this developing situation are high. The battle between profitability and market share is heating up, with companies forced to strike a delicate balance between pricing aggressively to stay competitive and maintaining sustainable margins.

Meanwhile, investors and analysts alike will be watching closely for additional signals from regulators and automakers in the weeks ahead. The EV market may be charging toward the future—but the road ahead is looking increasingly bumpy.