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Chinese EV stocks slide as Tesla Q4 results highlight demand fears

Published 01/25/2024, 10:36 AM
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Investing.com-- Shares of major Chinese electric vehicle makers fell sharply on Thursday as weaker-than-expected fourth-quarter earnings from Tesla Inc (NASDAQ:TSLA) ramped up concerns over a slowdown in global demand.

A warning from Tesla CEO Elon Musk- that Chinese EV makers would “demolish” their foreign rivals without trade barriers, also fed into fears of eventual export restrictions on the sector.

Hong Kong shares of Chinese EV makers NIO Inc (HK:9866), Li Auto (NASDAQ:LI) Inc (HK:2015) and Xpeng (NYSE:XPEV) Inc (HK:9868) sank between 5% and 8%, while those of BYD (HK:1211), which is a key competitor of Tesla, fell 3.5%.

Contemporary Amperex Technology Co (SZ:300750), which is a key battery supplier for Tesla, sank 1.4% in Shenzhen trade.

The declines came tracking a 3% fall in Tesla in aftermarket trade, after the world’s most valuable carmaker clocked weaker-than-expected EPS for the fourth quarter, following a series of price cuts over the past year.

The firm warned that sales growth will be “notably lower” in 2024 from the prior year, especially as it works on the development of a new generation of EVs. Tesla also faced increased regulatory scrutiny in China amid souring relations between the world's largest economies.

EV demand fears rise, China competition to heat up

But Tesla’s weak outlook fed into concerns that global demand for EVs was slowing, especially after a recent research report showed that a reduction in state subsidies and market saturation was expected to dent sales growth in 2024.

Traditional automakers including General Motors Company (NYSE:GM) and Ford (NYSE:F) were recently seen scaling back production plans for EVs in the face of potentially weaker demand, while hybrid vehicles, which- which use both electric motors and traditional combustion engines- are seeing a resurgence in demand.

While China is expected to remain a key driver of EV demand in the coming year, falling sales in the rest of the globe are expected to ramp up competition in the country.

Tesla had started a bitter price war in the country over the past year, as price cuts by the EV maker spurred similar measures by its peers. This resulted in weakening margins across the sector.

Analysts said that Tesla was unlikely to ease up with its price cuts, especially in the face of weakening demand and increased competition. This likely presents more margin pressure on EV makers.

“Flat sales and substantially reduced margin results are further evidence that Tesla is losing its leadership advantage and its brand leadership has weakened," Greg Silverman, global director of brand economics at Interbrand told Reuters.

Increased competition may also see Tesla lose its market dominance in the EV sector. Chinese rival BYD sold more EVs globally than Tesla in the fourth quarter, with the former also making forays into the growing Indian market well ahead of Tesla.

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