Shares of Chinese electric car makers started the new year on a downtrend, facing stiff competition and ongoing price wars that are eroding automakers’ profitability amid weak overall market sentiment.

Hong Kong-listed shares of Nio and Xpeng have fallen more than 18% and 16%, respectively, while Li Auto has fallen 12% so far this year. BYD and Zhejiang Leapmotor have fallen nearly 2.5% and 12%, respectively, in 2024.

Bernstein analysts noted in a recent report on China’s electric vehicle industry: «We expect competition within the domestic market to remain intense, putting pressure on pricing and profitability.»

Morgan Stanley also highlighted these concerns about competition in its note on Wednesday: «Investors remain cautious as the Chinese auto market has had a volatile start to the year amid persistent competition and macroeconomic uncertainties.»

According to data from the China Association of Automobile Manufacturers cited by Fitch Ratings, sales growth of electric passenger vehicles in mainland China slowed to 28% in the third quarter of 2023, from 108% in the same period a year earlier.

Fitch Ratings expects this growth slowdown to worsen in 2024. “We expect domestic demand for passenger cars in China to increase modestly in 2024 to nearly 22 million units amid economic uncertainty,” Fitch Ratings said.

Automakers have been working to increase deliveries despite the slowdown warning. Xpeng delivered a record 20,115 EVs in December, up 78% from a year earlier, with fourth-quarter deliveries topping 60,000 for the first time. Li Auto’s fourth-quarter deliveries reached 131,805, up 184.6% year-over-year.

BYD surpassed Tesla in the fourth quarter to become the world’s best-selling electric vehicle brand, selling more battery-powered vehicles than its U.S. competitor.

Competition and price wars are intensifying in China’s EV market. BYD, Li Auto, and Geely have all met their 2023 sales targets, while Xpeng and Nio have failed to do so. Bernstein noted: «The competitive landscape will be more challenging, with pricing pressure set to continue. While EV demand is likely to remain resilient, the industry will face three major supply-side challenges: overcapacity, new model launches, and the rise of new technology entrants such as Huawei and Xiaomi, which point to increasing competition.»

HSBC China Autos analysts noted in a December report that more than 100 new EV models are expected to be launched in China in 2024. Several domestic EV players, including Nio, Huawei, and Zeekr, have recently unveiled new EVs. Xpeng launched its latest X9 large 7-seater EV on January 1, further intensifying competition. Chinese consumer electronics giant Xiaomi is also set to launch its first EV in the increasingly competitive market.

Last year, Tesla embarked on several rounds of price cuts, including in China, quickly followed by domestic rivals BYD, Nio, Li Auto and Xpeng.

Fitch Ratings said in November: «We expect the market to consolidate accordingly, with smaller niche EV manufacturers that require development capital likely to merge or be acquired by stronger market participants.»

As Chinese EV makers scramble to attract customers with new offerings and lower prices, their profitability will come under increasing pressure. Morgan Stanley warned that 2024 will be “tougher as China remains relatively saturated.”