Fierce Price War Batters China’s Auto Stocks as Industry Leader Warns of ‘Evergrande-Like’ Crisis
Udumbara
A fresh wave of steep price cuts by BYD sent shockwaves through China’s auto sector, raising fears of escalating price wars and causing the automaker’s stocks to tumble.
At the same time, an industry leader’s warning about the emergence of an “Evergrande” within China’s auto industry—referencing the once-dominant, now debt-ridden property developer that is facing court-ordered liquidation—quickly went viral on Chinese social media, amplifying concerns about financial instability.
Following BYD’s announcement on May 23 of price reductions of up to 34 percent across 22 battery electric vehicle (EV) and plug-in hybrid models, the company’s shares plummeted by 8.6 percent in Hong Kong trading by May 26.
On the same day, Geely’s stock fell as much as 9.5 percent, while Great Wall Motor’s stock dropped up to 8 percent. Other EV manufacturers, including Li Auto, Nio, and Leapmotor, also suffered drops ranging from 3 percent to 8.5 percent.
The broad sell-off reflected growing investor concerns over shrinking profit margins, weakening demand, intensifying competition, and increasing financial pressures across the sector.
Auto Industry’s Evergrande
In an exclusive interview with Sina Finance on May 26, Great Wall Motor Chairman Wei Jianjun warned that China’s auto industry is in an “unhealthy state” and facing serious systemic risks. He revealed that the EV sector is largely operating at a loss, making it impossible to establish a sustainable business cycle. Capital has already taken profits and exited, leaving automakers in a precarious position.“Prolonged price wars in the auto sector have seriously disrupted the stability of the supply chain,” Wei said. “There’s already an Evergrande inside the auto industry. It just hasn’t blown up yet.”
Evergrande, once China’s largest property developer, defaulted on its offshore debt in December 2021 after Beijing imposed stricter rules on developers’ borrowing, and the company’s prolonged financial crisis ultimately culminated in a Hong Kong court ordering its liquidation in January 2024.
During the interview, Wei disclosed that some automakers are not only pressuring suppliers to cut costs but also deferring payments and even compromising on safety and quality in order to offer their vehicles at competitive prices.
He also criticized some major automakers for focusing too heavily on market valuation and stock performance while neglecting financial stability and long-term operations.
Zhu Huarong, chairman of Changan Automobile, had delivered a similar warning in January 2024 at an auto industry conference, stating that China’s auto sector was “grappling with disorderly competition” and entering “an era of uncertainty and turmoil.”
He highlighted that with production costs remaining high, much of the EV industry is still operating at a loss. Among the more than 70 passenger car brands currently in the Chinese market, only four or five are truly profitable, he said.
Amid such intense competition, “some prominent industry figures are making irresponsible remarks when marketing their products. They’ve completely abandoned any moral bottom line,” Zhu said.
At the time, Zhu expressed hope that the EV industry would see meaningful improvements within the next two years.
However, so far, reality has fallen short of those expectations.
China’s auto industry is still frequently resorting to price wars due to a combination of persistent overcapacity, intense competition, and soft consumer demand.
And now, amid a weakening economy, key markets such as Beijing and Shanghai are exhibiting clear signs of weakening demand.
This latest round of price cuts is BYD’s third since March and its most aggressive yet.
Reflecting deepening turmoil in the industry, many automakers are offloading unsold inventory as “zero-mileage used cars”—brand-new vehicles that have been registered but never driven—to offer disguised discounts, clear out stock, and boost short-term cash flow.
