• A tough price war is raging in the e-car market
• The stock market value of BYD has recently shrunk significantly
• Potential buyers may be waiting for further discounts
Competition is currently intensifying in the e-car industry. In order to attract more customers and increase sales, Tesla has aggressively tightened the price screw several times in the past few months. In addition, the US electric car maker also significantly reduced its prices in other countries, including in BYD’s home country of China. This prompted competitors like NIO, XPeng and BYD to follow suit and also reduce the prices of their vehicles to stimulate demand.
However, Tesla has an earning power that many of its peers can only dream of. Thanks to its productivity, the group of Elon Musk do well to lower prices, whereas many rivals have so far hardly made any money from e-cars or even lose money. “This is an EV arms race and Tesla has the margins to cut prices and still be well ahead of other automakers,” Dan Ives, managing director of equities at Wedbush Securities, told CNBC.
Price losses at BYD
This price war is now also reflected in the share price of the Chinese electric car manufacturer BYD. For example, Bloomberg reported that the US-listed stock lost a whopping 14 percent of its value between February 1 and March 3, causing the Shenzhen-based automaker to lose a whopping $18 billion of its total value. At the same time, Tesla shareholders could have enjoyed a price increase of nine percent.
“A gradual change is underway in the industry as price cuts can mean that buyers hold back waiting for even lower prices, while at the same time all manufacturers’ margins can be extremely negatively affected,” quotes the news portal “Bloomberg”. Robert Mumford, an investment manager at GAM Hong Kong Ltd.
In fact, Tesla customers who bought their vehicles back in 2022 were unenthusiastic about the price cuts Tesla made in China in January. According to Reuters, videos showing customers complaining in front of Chinese delivery centers went viral. They are said to have been angry because they bought their vehicles at significantly higher prices last year before the US group opened the discount battle. In view of this, Mumford could be correct in his assessment that potential buyers are now possibly hoping for further price reductions and are therefore holding back.
What role does Warren Buffett play?
According to “Bloomberg”, the sale of shares by the prominent major shareholder Warren Buffett is also putting pressure on BYD’s share price. As of January 3, 2023, the investment company Berkshire Hathaway reduced its stake in BYD from 14.06 percent to just 13.97 percent. This is the seventh time in a short space of time that the stock market guru’s investment firm has reduced its stake in Tesla’s competitor, after holding its stake in the Chinese carmaker for many years. Berkshire now holds about a quarter fewer BYD shares than it did in August 2022. With these share sales, the US holding company made massive profits with its BYD holding.
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