Shares of BYD experienced a significant downturn,plummeting as much as 8.25% on Monday. This sharp decline follows the company’s recent record high last week,triggered by investor reactions to the Chinese electric vehicle manufacturer’s price reductions announced on May 23.

The automaker announced via the Chinese social media platform Weibo that it is lowering prices on 22 of its electric and plug-in hybrid models through the end of June.

For example, the Seagull hatchback’s price was reduced by 20% to 55,800 Chinese yuan ($7,780), while the seal dual-motor hybrid sedan saw a 34% price cut, bringing it down to 102,800 yuan.

These recent adjustments follow earlier price revisions this year, including the release of its Han sedans and Tang SUVs with starting prices 10.35% and 14.3% lower than previous versions.

Analysts at Citi anticipate that BYD’s price cuts led to a 30% to 40% increase in customer traffic at its dealerships between May 24 and 25,compared to the preceding weekend.

The shares of other Chinese automakers also fell on Monday, as investors grew wary of increased competition and a potential price war within the electric vehicle sector.

Shares in Geely Automobile were last trading 7.29% lower, while Great Wall Motor Co and Li car experienced declines of 2.94% and 4.93%, respectively. Xpeng shares were down by 4.19%.

Looking forward, Citi’s analysts do not believe that BYD’s price cuts will significantly diminish its competitors’ market share.

Rather, they project “robust sales growth” for new energy vehicle companies with prices below 200,000 Chinese yuan, noting that “competition remains relatively mild,” according to a May 26 note.

Analysts from Citi expect BYD’s price reduction to have caused a 30% to 40% spike in footfall at its dealership stores.

Understanding the EV Price War

The electric vehicle (EV) market is currently experiencing a period of intense competition, frequently enough referred to as a “price war.” This phenomenon is characterized by automakers aggressively lowering prices to gain market share and attract consumers.Several factors contribute to this dynamic, including increased production capacity, technological advancements, and government incentives aimed at promoting EV adoption. This can lead to short-term benefits for consumers, but also raises concerns about the long-term profitability and sustainability of EV manufacturers.