investor anxiety over the profit outlook for China’s electric-vehicle sector, as cooling demand at home and surging raw material costs trigger a brutal reset of expectations.
BYD’s Hong Kong-listed shares are down this week after disappointing sales data, extending a selloff that has shaved off more than $60 billion in market value since May. The slump reverberated across EV peers, compounding woes for a stock market also grappling with fresh concerns over taxes and business disruption from artificial intelligence.Traders had already braced for weaker EV growth this year on lower government subsidies, reflected in a build-up of bearish bets since November. Still, the pace of demand deterioration has caught many off guard. Adding to the strain, soaring costs for battery materials and memory chips are likely to squeeze automakers’ margins even further.
“Investor sentiment is extremely negative,” said Xiao Feng, co-head of China industrial research at CLSA in Hong Kong. “The deeper worry is that we’ll see large-scale earnings downgrades this year, raising doubts about the EV makers’ long-term ability to generate profits in China’s domestic market.”
Exports remain a bright spot, but Chinese car manufacturers still rely heavily on the fiercely competitive domestic market, where consumers remain skittish. Morgan Stanley notes that most local automakers expect first-quarter volumes to drop 30–40% from the December quarter.
January sales underscored that even market leaders aren’t immune. BYD’s domestic deliveries for the month halved versus a year ago to 109,569 units, while last year’s outperformer XPeng Inc. reported a more than 30% decline in total deliveries.
More troubling for investors is the profit impact of surging raw material costs while EV makers are still burning cash on promotions to lure buyers. The price of lithium for EV batteries has more than doubled over the past three months, while copper and aluminum have also surged. The supply crunch in memory chips is making intelligent auto components more expensive.
“Cost inflation is the main risk,” said Joanne Cheng, investment manager for China equities at Aberdeen Investments. “Whether auto OEMs can pass through to retail customers while competition remains fierce is a question.”