Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Will the EV price war dent Tesla’s share price?

As automakers continue to cut prices in China, the world’s largest electric vehicle market, competition will increase. Tesla could come under pressure from domestic players, especially as sales growth could slow this year following the ending of subsidies. 

- BMW and Volkswagen are the latest automakers to join the EV price war.

- Sales growth in China could stall after the government ended its subsidies.

- The Global X Autonomous & Electric Vehicles ETF is up 11.6% year-to-date.

An electric vehicle (EV) price war in China triggered by Tesla [TSLA] rolls on, with BMW [BMW.DE] and Volkswagen [VOW3.DE] becoming the latest automakers to join the fray.

 

In early March, BMW slashed the cost of its BMW i3 in China by 100,000 yuan (¥) or approximately $14,360. Within one week, Volkswagen followed suit, reducing the price of several models by up to ¥40,000, approximately $5,820.

The announcement of BMW’s cost cut is believed to have contributed to a big sell-off in domestic EV players, including BYD [1211.HK], Nio [NIO], Li Auto [LI] and Xpeng [XPEV], although the latter two have since recovered on the back of positive earnings.

The BMW share price is up 13.8% year-to-date, though down 4.8% in the past month. The Volkswagen share price is up 3.5% and down 9.2% in the respective periods.

 

Low prices may be denting investor confidence

When Tesla started lowering prices in China last October, the aim was to stoke demand in a crowded market. According to data from China Merchants Bank International, sales were up 76% year-over-year for the 9-15 January period, following further cuts, but demand has since stalled. Sales growth slowed to 32% in February, data from the China Passenger Car Association shows.

"Unlike earlier cuts that triggered a strong demand-response, this round has not seen follow-through as consumers wait for further cuts,” wrote Morgan Stanley analyst Adam Jonas.

In a note published 10 March, Jonas and his team argued that slowing demand is weighing on investors’ confidence. A sales uptick into the second quarter will be required to regain their faith. However, a “[p]rolonged price competition will likely aggravate consumer hesitancy in placing orders … We gauge a full-blown price war would urge consumers to stay sidelined and await more promotions [and] discounts to come,” they added.

To make matters worse for Tesla, BYD, the EV market leader in China, lowered the prices of certain models at the end of February, and again in March.

Lack of subsidies could stymie sales growth

Subsidies have been boosting China’s EV sales over the past couple of years. First introduced in 2010, subsidies for EV buyers were originally meant to end in 2020, but they were extended until 31 December 2022 because of Covid-19.

With battery costs rising, automakers will have to continue offering discounts to sustain sales, unless the Chinese government starts offering subsidies again, argued ING analysts led by Iris Pang, chief economist for Greater China.

“The fiscal burden has risen and the government may not want to spend on subsidies to boost consumption when the economy is recovering,” they cautioned, adding that after “the fiscal-driven spike” of the past few years, expectations for EV sales in 2023 have been “tempered”.

On the assumption that there will be no further stimulus, Pang expects the share of EV cars to rise slightly, from 26% of all passengers last year, to 27.5% in 2023. But if the government does re-introduce subsidies the share could rise above 30%.

Funds in focus: Global X Autonomous & Electric Vehicles ETF

Tesla is the second-biggest holding in the Global X Autonomous & Electric Vehicles ETF [DRIV], with a weighting of 4.35% as of 17 March. Volkswagen, Xpeng and Nio account for 1.20%, 0.91% and 0.85% of assets under management (AUM), respectively.

The fund is up 11.6% year-to-date, though down 4.6% in the past month.

Tesla and BYD are the fifth- and sixth-biggest holdings in the KraneShares Electric Vehicles & Future Mobility Index ETF [KARS], making up 3.92% and 3.90% of the portfolio respectively. Li Auto, Nio, Zpeng and Volkswagen account for 2.66%, 2.30%, 1.78% and 1.05% of AUM, respectively. The fund tracks the performance of the Bloomberg Electric Vehicles Index.

While trading flat year-to-date, the fund is down 9.6% in the past month. 

For a pure-play on China’s EV industry, there’s the Global X China Electric Vehicle and Battery ETF [2845.HK]. BYD is the third-biggest holding, with a weighting of 9.85%.

The fund is down 7.9% year-to-date and down 9.6% in the past month.

 

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Latest articles