BYD Unleashes an EV Industry Reckoning That Alarms Beijing

News analysis

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BEIJING - The price war engulfing China's electric vehicle (EV) industry has sent share prices tumbling and prompted an unusual level of intervention from Beijing. The shake-out may just be getting started.

For all of the Chinese government's efforts to prevent price cuts by market leader BYD from turning into a vicious spiral, analysts say a combination of weaker demand and extreme overcapacity will slice into profits at the strongest brands and force feebler competitors to fold. Even after the number of EV makers started shrinking for the first time in 2024, the industry is still using less than half of its production capacity.

The Chinese authorities are trying to minimize the fallout, chiding the sector for "rat race competition" and summoning heads of major brands to Beijing last week. Yet, previous attempts to intervene have had little success. For the short term at least, investors are betting few automakers will escape unscathed: BYD, arguably the biggest winner from industry consolidation, has lost US$21.5 billion (S$27.6 billion) in market value since its shares peaked in late May.

"What you're seeing in China is disturbing, because there's a lack of demand and extreme price cutting," said Mr John Murphy, a senior automotive analyst at Bank of America. Eventually there will be "massive consolidation" to soak up the excess capacity, he added.