(Yicai) May 26 -- Shares of China’s listed carmakers slumped amid concerns of a new price war in the world’s biggest auto after BYD slashed prices at the end of last week.

BYD [HKG: 1211] closed down 8.6 percent at HKD425.20 (USD54.26) a share in Hong Kong today, while Geely Automobile [HKG: 0175] ended 9.5 percent lower at HKD18.38 (USD2.35) and Great Wall Motor [HKG: 2333] fell 5.5 percent to HKD11.98. Smaller electric vehicle startups also tumbled, with Leapmotor [HKG: 9863] losing 8.5 percent to HKD57.45.

According to an analyst quoted by the Securities Times, the direct cause of the decline in auto stocks is the prospect of a new price war. On May 23, Shenzhen-based BYD slashed the prices of 22 smart models by between 10 percent and 34 percent.

The price of BYD’s Hiace 07DM-i intelligent driving version dropped 34 percent from CNY155,800 to CNY102,800 (USD21,680 to USD14,300). Brokerage CICC said in a report that sales of the model have been weak because its high price made it less attractive to consumers with tighter budgets. The company had stepped up promotional efforts for the model in April and May, but with limited results.

lM Motors, the EV brand owned by SAlC Motor, said today it will offer a temporary 18 percent discount on its LS6 e-SUV, and Leapmotor yesterday trimmed the price of its C16 SUV and C11 models by 28 percent and 30 percent, respectively.

In an interview with Sina on May 23, Great Wall Motor Chairman Wei Jianjun said the price war indicated problems in China’s auto industry. “The prices of some products have dropped from CNY220,000 to CNY130,000,” he said. “What industrial product can be CNY100,000 cheaper but have guaranteed quality? This is impossible.”

He also said it was possible there may be another “Evergrande” in the auto industry, referring to the huge real estate company that has been in a financial crisis since 2021, and suggested that an industry-wide audit could expose financial vulnerabilities.

Cui Dongshu, secretary general of the China Passenger Car Association, said in mid-April that only 14 car models had their prices cut in April, a significant drop from 41 a year ago and 19 in April 2023, pointing to a cooling of the price wars. However, car companies have been offering other incentives to entice buyers, such as model upgrades and adjusted owner benefits.

From 2017 to last year, the average profit margin in the Chinese auto industry narrowed from 7.8 percent to 4.3 percent, and has been below the average for industry as a whole for three straight years, according to data from China’s National Bureau of Statistics. It fell to 3.9 percent in the first quarter of this year.

Editor: Tom Litting