Price war has reduced BYD's capitalization by $20 billion, why are investors worried?

Electric car maker BYD has lost $20 billion in market capitalization in two weeks amid a price war in China's electric car market, which it started. Investors are questioning the success of the leading Chinese automaker's strategy and its ability to meet its sales target. Meanwhile, BYD's competitors in the local market are ramping up their deliveries and increasing their market share.

Shares of BYD at the end of trading in Hong Kong on Friday, June 6, decreased in price by 2.2%. Thus, the securities of the leading Chinese automaker wrote Bloomberg.

The company's value has fallen sharply due to a new round of price war, which BYD itself started in May, lowering prices on its cars in China: discounts of up to 34%. Now there is growing skepticism among investors about the company's strategy, according to Bloomberg. More market participants began to bet on the fall of shares: the share of short positions reached 4.4% of the total volume of shares in circulation, although earlier in 2025 it was only 0.3%, the agency cited data S&P Global.

Despite price cuts, BYD had only met 32% of its 2025 sales target as of the end of May. Demand has slowed in the overall market, with new players such as Xiaomi and Huawei Technologies intensifying competition. BYD's latest innovations are drawing a sluggish response from consumers, with rivals including Xpeng and Zhejiang Leapmotor Technology increasing their market share writes Bloomberg. For example, May deliveries of Leapmotor more than doubled from a year ago, the agency noted.

The stock's selloff over the past two weeks suggests investors fear that increased competition will hit BYD's profitability and doubt its ability to meet its sales goal of 5.5 million vehicles this year, Bloomberg writes.

«The fall in BYD shares reflects a combination of concerns about pressure on the company's margins and deteriorating overall sentiment in the sector,» said Andy Wong, Asia Pacific investment director at Solomons Group. - 'Aggressive price cuts alone are now no longer enough to generate significant sales growth, especially in the more mature and competitive electric vehicle market.»

Price wars are likely to lead to industry consolidation again, as has happened before, but this time the process will be more complex, said Bing Yuan, fund manager at Edmond de Rothschild Asset Management, as quoted by Bloomberg.

«The players who are left in the market already have scale, a strong balance sheet and competitive products, and the situation is likely to worsen first before correcting itself,» the expert said. However, BYD can still come out of it as a winner, Yuan believes.

«We view [BYD's] latest price cut more as a short-term marketing action to attract buyers during the seasonal sales slump,» said Eugene Xiao, head of China equities strategy at Macquarie Capital. - We believe BYD is well aware that price competition is an unsustainable strategy for long-term growth.»

BYD has already set a record for deliveries to overseas markets this year, which provides the company with a certain «safety cushion», allowing it to withstand high competition at home, Bloomberg writes. In April, BYD for the first time beat Tesla in terms of electric car sales in Europe: 169% more BYD electric cars were registered in the EU in April than a year earlier.

However, strong export volumes also suggest that «domestic sales are under even more pressure than the market expected, especially given the seasonal slowdown in the second quarter,» believes Bin Yuan of Edmond de Rothschild.

Despite falling over the past two weeks, BYD stock is now 51% more expensive than it was at the start of 2025. According to data from MarketWatch, no analysts advise selling BYD securities. Eight recommend buying them, while six recommend keeping the purchased securities in a portfolio.

BYD shares have lost their former investment attractiveness: they are overvalued, Bloomberg believes. Now they are traded with a ratio of 19 to annual projected earnings (P/E ratio), while at the beginning of the year it was 14, the agency notes.

Chinese authorities met with executives from leading electric car makers this week to discuss the implications of a protracted price war, wrote Bloomberg, citing sources. Among those invited were top executives from more than a dozen companies, including BYD, Zhejiang Geely Holding Group and Xiaomi, the agency's sources said. The officials urged automakers to «self-regulate» and warned that they should not sell cars below cost or offer unreasonable discounts.

Such meetings between China's market, industry and economic regulators and the auto industry on operational issues such as pricing are rare, Bloomberg noted. That underscores how closely the country's top leadership is now monitoring the sector amid concerns that the price war is becoming unsustainable and could lead to the bankruptcy of weaker players, Bloomberg said. That said, no directives have been issued by the authorities, the agency's interlocutor said.