Chinese electric vehicle companies could be at risk of a big reversal as competition and the ongoing price wars start to dent their profits, which happened to BYD Last week. This crisis may hurt top companies like Li Auto (LI), XPeng (XPEV), and Nio (NIO) stocks.

BYD earnings pose a risk to Li Auto, XPeng, and Nio stocks

Tesla and BYD are the biggest players in the electric vehicle industry, and their performance often signals what happens to other smaller player in the sector. 

Recent data showed that the two companies are not doing well. Tesla’s unit sales, revenue, and profitability dropped in the second quarter, a trend that may continue this year. Its automotive revenue plunged by 16% to $16.6 billion, while the total figure fell by 12% to $22.49 billion. This decline resulted in a 16% profit crash.

BYD, its biggest competitor, also published weak financial results last week as the ongoing competition dented its performance. The net income fell by 30% to $892 million, while its revenue of 200.9 billion yuan was also lower than expected.

The company sold 2.15 million vehicles in the first half of the year, a 33% increase from the same period last year. While impressive, the delivery growth was also lower than the expected 40%.

This slowdown happened even as the company offered some steep discounts during the first half of the year. Indeed, the management cited the ongoing ‘industry malpractices’ and excessive marketing for its woes.

Nio vs Li Auto, vs Xpeng vs BYD

Smaller EV companies at risk

BYD’s weak financial results will likely hurt its smaller competitors like Li Auto, XPeng, and Nio. Indeed, Li published a mixed report last week.

In it, the company said that its revenue dropped by 4.5% from last year to 30.25 billion yuan, much lower than the 33.04 billion that analyst were expecting. It unit sales in the third quarter were also lower than what analysts were expecting. 

Li Auto stock price has already crashed by over 27% from its highest point this year. Its performance, too, will likely hurt those of its competitors like Nio and XPeng because it is often considered as one of the most successful EV companies in China. 

XPeng and Nio have all reported strong results recently, pushing their shares higher. Nio stock has surged by 110% from its lowest level this year. This growth is partly because of its new vehicle launches. 

While XPeng stock has pulled back, it still remains 90% above the lowest level this year.

The risk is that these companies will also go through the challenges that the bigger players like Tesla and BYD are facing. Besides, the industry is being highly saturated, with all these companies, and newer ones like Xiaomi pumping thousands of cars to the market. 

Read more: Nio stock surges 11% as Morgan Stanley reaffirms bullish view after ES8 launch

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