Shares in Chinese electric vehicle makers Li Auto and BYD Co fell after both released quarterly results that disappointed investors.
Earnings from the pair are significant as they are the only two profitable EV manufacturers in mainland China, with the industry in the spotlight amid a price war that is squeezing margins for all companies.
Shenzhen-based BYD, the world's largest EV producer, posted a net profit of 9.1 billion yuan (US$1.28 billion) for three months to June, up 33% on a year ago and almost double the level in the first quarter of 2024, but despite being the company's second-highest on record, it was short of the consensus forecast.
Its revenue grew 26% year-on-year to 176.2 billion yuan but gross margins declined to 18.69% from 21.88% in the first quarter.
The drop was attributed to aggressive pricing strategies, despite a rise in gross margins over the first half of the year.
BYD maintained its leadership in the Chinese EV market, driven by its vertical integration strategy, which allows the company to produce almost all components apart from windows and tyres in-house.
This means for vehicles priced in China under 150,000 yuan (US$21,046), BYD "holds absolute pricing power", said Rosalie Chen, an analyst at Third Bridge.
She also said BYD is phasing out the use of independent dealerships to focus on company-owned stores and within a year and a half, is likely to no longer rely on independent dealerships.
Beijing-headquartered Li Auto's second-quarter profit of 1.1 billion yuan was an 86.2% jump from the first quarter, slightly surpassing the 1.06 billion yuan forecast by analysts.
Revenues of 31.7 billion yuan also topped analysts' estimates and exceeded the upper end of the guidance range, rising 10.6% from a year ago and 23.6% from the first quarter.
Li increased vehicle deliveries by 25.5%, partially offset by lower average selling prices primarily due to a different product mix, it said.
However, shares in Li Auto fell almost 10% in Asia trading, having risen sharply in the past couple of weeks, but now down more than 50% over the last 12 months, while BYD's were down less than 1%, down 5% over 12 months.
BYD has also expanded its global footprint, particularly in Europe and Mexico, despite facing challenges such as a 17% additional tariff for exporting EVs to the European Union.
Regarding the EU’s anti-subsidy tariffs on EVs from China, Third Bridge's Chen believes the core objective is to use tariffs as a means to protect the European automotive industry.
"This is only the first phase; the EU is likely to observe how Chinese automakers respond. If Chinese companies decide to build factories in Europe, it would be the most desired outcome for the EU.
"Looking ahead, experts predict that subsidies, combined with carbon taxes and battery passports, will be used to attract the upstream battery supply chain to Europe."