China EV Stocks Tumble: XPeng, Li Auto, BYD and Polestar Hit as Price War Bites

China electric vehicle (EV) stocks have sold off sharply this year, with most erasing billions of dollars in value amid a relentless price war. XPeng (NYSE:XPEV) ended last week at $9.05, its lowest level since September 2024. 

Li Auto (NASDAQ:LI) dropped to $11 from its all-time high of $47.28, while Polestar (NASDAQ:PSNY) has tumbled 80% this year to $4.10. Nio (NYSE:NIO) fell to $3.20, down 54% from its peak this year, while BYD has declined 40% from its peak this year.

China EV Sales are Slowing as Price War Continues

Chinese electric vehicles have wowed many enthusiasts globally because of their technology and lower costs. 

However, their companies are facing major challenges, as evidenced by the ongoing sell-off in their stock prices.

One of them is the fact that automotive sales are slowing and are on track to have their worst performance since 2014. A report by AlixPartners, cited by the WSJ, showed that passenger vehicle sales will be 18.5 million this year, much lower than last year.

One reason for this is that China, like in the United States, has started phasing out some of the incentives that customers had to buy electric vehicles. For example, the full purchase tax exemption became a 50% reduction, with the maximum benefit per vehicle falling from RMB 30,000 to RMB 15,000.

This development happened at a time when many Chinese EV companies were boosting their vehicle production. As a result, with demand falling and supply rising, companies have had to slash their prices to gain market share. Most Chinese EV companies have reported lower gross and net profit margins in the past earnings reports.

Chinese EV Companies are Betting on International Growth

With its domestic market highly competitive, Chinese EV companies are now focusing on the international market, where they are getting higher margins.

Europe has become a key market for these companies, with the five largest of them capturing a 11.5% market share in September. The challenge, however, is that European governments are considering higher tariffs to protect their domestic companies. 

In the US, the Joe Biden administration placed a 100% tariff on Chinese EVs, explaining why they are not competing there.

Chinese EV companies are also facing other challenges, including the rising cost of doing business because of the ongoing US-Iran war, which has led to supply chain challenges. 

Still, some analysts predict that Chinese AI companies have now become bargains. For example, Goldman Sachs (NYSE:GS) sees XPeng stock rising to $16 from the current $9. Jefferies sees the stock hitting $25. Goldman Sachs also sees Nio rising to $6.10, while Bernstein expects it to hit $5.

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