Electric vehicle stocks had a terrible week across the board as the price war that's been building around the world took another step in China. BYD (OTC: BYDDY)(OTC: BYDD.F) lowered prices for its EVs again, and Tesla(NASDAQ: TSLA) followed the move with nearly $5,000 in incentives for its vehicles. It was hard to make money in EVs before, and now it's becoming nearly impossible.
Shares of Li Auto(NASDAQ: LI) dropped as much as 17% this week and closed the week down 16.4%, according to data provided by S&P Global Market Intelligence. Fisker(NYSE: FSR) fell 20.8% and closed at the low for the week while Rivian(NASDAQ: RIVN) was up as much as 20.2% and closed up 12.4% for the week.
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China's EV price war heats up
Early this week, news broke that Tesla had given incentives amounting to nearly $5,000 in China in response to BYD cutting prices. BYD's least expensive car is just $10,000, a shockingly low price even for the Chinese market, and everyone in the industry is cutting prices to compete.
A price war in China doesn't necessarily directly impact U.S. manufacturers, but there are indirect impacts. Chinese vehicles do make their way to Europe and much of the rest of the world. So, falling prices can reduce the addressable market for Rivian and Fisker.
Li Auto will directly be impacted and had offered discounts of around $5,000 earlier this year. That could impact the company's margins and show that this will be a very competitive market for manufacturers around the world.
Rivian's big week
On Thursday, Rivian unveiled its next-generation R2 vehicle that will start at $45,000 and also showed off the even smaller R3. Fans and investors cheered the specs, which were competitive with Tesla and other EVs available in the U.S.
Rivian also said it would delay its Georgia expansion, which will save about $2.25 billion in capital expenditures. This is expected to allow the company to get to the R2 launch without needing to raise capital.
Beyond the R2 launch, the picture gets a little more questionable given the relatively low 215,000 units of capacity it will have in 2026. That's probably not enough to get to profitability, opening questions about Rivian's financials as competitors are cutting costs around the world.
EVs are facing a growing challenge
The fundamental challenge for EV manufacturers is balancing supply and demand. As supply exploded around the world, the industry has been flooded with vehicles, and their best way to respond has been to lower prices to move vehicles. But lower prices mean lower margins as well, making it tough to generate a profit.
None of these manufacturers seem to be backing off their plans to grow production and introduce more vehicles, which will only make the supply problem worse.
We've seen margins fall and losses mount across the industry, and that will likely continue, which is why most EV stocks were down this week.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BYD and Tesla. The Motley Fool has a disclosure policy.
