Chinese electric car makers suffer as Elon Musk doubles down on Tesla price war

Shares in Tesla’s Chinese rivals fell on Thursday, after CEO Elon Musk signaled that the company will continue cutting prices to boost demand for electric cars in an increasingly competitive market.

XPeng plunged 8% in Hong Kong, while Nio (NIO) sank 5.6%. Li Auto and Leapmotor tumbled 4.2% and 2.4% respectively.

BYD (BYDDF), the world’s largest seller of plug-in hybrid EVs and battery EVs, also dropped 1% in Hong Kong. Its Shenzhen-listed stock lost 2.3%.

“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk during an earnings call with analysts on Wednesday.

“We do believe … that it’s better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy.”

In China, the world’s largest EV market, Tesla started cutting prices in October after it lost market share to its competitors, such as Warren Buffett-backed BYD. In early January, it slashed prices again for its China-made Model 3 and Model Y.

Tesla has cut prices in many markets worldwide to bolster demand amid a growing challenge from other EV makers. In the United States, the company reduced prices for the sixth time this year just ahead of its first-quarter earnings.

The price cuts seemed to have a major impact.

In January, sales of Tesla’s China-made vehicles jumped 10% from the same period a year ago, according to statistics released by the China Passenger Car Association. In the meantime, most of its Chinese rivals posted steep drops in sales. Leapmotor and Xpeng’s January sales plummeted 86% and 60% respectively.

Tesla’s cuts have sparked a price war in the country. A number of car manufacturers in China followed suit by cutting prices or offering discounts, including Xpeng, Leapmotor, BYD and Huawei’s EV unit.

“Tesla has cut prices a lot. If we don’t cut prices, we really can’t survive,” a Huawei EV salesperson told state-owned Economic Observer in February.

According to the most recent statistics from the CPCA, Tesla’s sales of its China-made vehicles surged 35% in March to more than 88,000 units. But it still lagged behind BYD, which sold more than 100,000 pure battery EVs.

Shares of European car makers also tumbled Thursday amid concerns over pricing pressure.

Renault (RNLSY) slid 6.5%, even as the French company reported strong sales and higher prices for the first quarter. Stellantis, the group formed from the merger between Fiat Chrysler (FCAU) and PSA Group, fell 4.8%.

Mercedes-Benz Group and BMW both dropped around 2.8%. Volkswagen (VLKAF), Europe’s biggest car maker, fell 1.9%.