Shares in electric vehicle maker BYD fell as quarterly profit dropped 30% to 6.4 billion yuan, the first decline in over three years. Chinese government efforts to halt a price war are eroding its competitive advantage. Analysts cite lackluster sales momentum and structural headwinds as reasons for underperformance, leading to reduced earnings forecasts.

BYD’s Hong Kong-listed shares closed 5.2% lower, marking the biggest one-day decline since May 26. Its Shenzhen-listed shares fell 3.8%. The company’s rapid sales growth was fueled by aggressive price cuts, but Chinese authorities have intervened to stop these cuts amidst concerns for the auto sector’s health.

Citi analysts noted that BYD’s net profit missed estimates, with sales not improving despite price cuts. The company paid a 1 billion yuan special incentive to dealers during the period. BYD aims for global sales of 5.5 million cars in 2021 but has only sold 2.49 million as of end-July, 45% of its target. August sales report is pending.

Analysts predict underperformance for BYD until it regains momentum, citing a loss of speed in its once formidable competitive moat. The company’s ‘gravy train’ driven by scale, cost cuts, and tech leadership has slowed. Earnings forecasts for 2025-2027 have been revised downwards to reflect these challenges.

Read more at Yahoo Finance: BYD’s shares slide after steep fall in quarterly profit