A relentless sell-off in BYD shares is highlighting investor anxiety regarding the profit outlook for China’s electric-vehicle sector. Cooling domestic demand and surging raw material costs are triggering a significant reset of expectations. BYD, a major Chinese electric vehicle manufacturer, designs, develops, manufactures, and distributes automobiles, as well as related auto parts and services. The company is also involved in the research and development, manufacture, and sale of batteries.
BYD’s Hong Kong-listed shares have dropped approximately 7 per cent this week following disappointing sales data. This decline extends a sell-off that has erased over $US60 billion in market value since May. The slump has impacted other EV companies, adding to the challenges for a stock market already dealing with concerns about taxes and the potential disruption from artificial intelligence.
While traders anticipated weaker EV growth this year due to reduced government subsidies, as reflected in increasing bearish positions since November, the rapid deterioration in demand has surprised many. The soaring costs of battery materials and memory chips are expected to further compress automakers’ profit margins. Morgan Stanley reports that most local automakers anticipate a 30-40 per cent drop in first-quarter volumes compared to the December quarter.
According to Xiao Feng, co-head of China industrial research at CLSA in Hong Kong, investor sentiment is extremely negative. The primary concern revolves around the potential for substantial earnings downgrades this year, raising doubts about the long-term profitability of EV manufacturers within China’s domestic market. While exports remain a positive area, Chinese car manufacturers still heavily depend on the highly competitive domestic market, where consumer confidence remains fragile.
