Al Root
Tesla, the global leader in battery-electric vehicles, cut prices in the first quarter. Now BYD, the EV leader in China, is doing the same in the second quarter. That makes investors nervous.
Thursday, Citi analyst Jeff Chung pointed out that BYD (ticker: 1211.Hong Kong) has cut prices on its Han plug-in hybrid vehicles. It's the second cut in the past "210 hours," wrote Chung.
About a week ago, BYD also cut prices for its Seal battery-electric vehicle. Cuts, depending on the version, ranged from roughly 3% to 10%. The Seal now starts at about $28,000. A Tesla $(TSLA)$ Model 3 in China starts at about $34,000.
Price cuts can signal trouble in a market, but there doesn't appear to be an issue with demand. For the year to date through the end of April, new-energy vehicle sales in China, which includes both battery-electric and plug-in hybrid vehicles, rose 43% year over year to 2.1 million units, according to China Passenger Car Association data. During that time, battery-electric-vehicle sales rose 29% to 1.5 million units, and plug-in hybrid sales rose 100% to 600,000 units.
Those numbers might be a little inflated. Chung, in a separate report, wrote that auto makers likely included some early May sales in April numbers. That's just noise. He is expecting a strong year for EV sales in China, with unit sales up roughly 30% year over year.
Instead of demand, BYD might just might be feeling pressure to match Tesla's price cuts, which accelerated in January. BYD didn't immediately respond to a request for comment about pricing.
Tesla's price cuts worked. It picked up market share in China in the first quarter, growing sales volumes by almost 30% year over year, faster than the market grew. That share didn't come at the expense of BYD, though; it grew first-quarter battery-electric sales by 85%.
Cutting prices highlight a risk from using them as a weapon to gain market share: When everyone drops prices to match, market shares don't change much, and everyone is worse off -- except consumers.
There is another effect. BYD and Tesla -- the only two EV makers globally producing consistent profits -- are pressuring Chinese EV peers. Price cuts eat into profits, but the two have more room to cut than others.
Investors were shaken by Tesla's first-quarter profit margins following its cuts. Tesla reported first-quarter operating-profit margin of about 11%, down from about 19% a year ago. Shares fell almost 10% in response.
Tesla stock is up 0.9% in midday trading Thursday. The S&P 500 and Nasdaq Composite are up 0.5% and about flat, respectively. BYD's U.S. listed American depositary receipts, or ADRs, are down 0.3%.
BYD's Hong Kong-listed shares rose 1.8% Thursday. The Hang Seng Index added 0.9%.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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May 18, 2023 13:10 ET (17:10 GMT)
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