The EV space took a hit overnight after China's BYD—Tesla's top rival—announced sweeping price cuts of up to 34% across nearly two dozen models. This intensified an already brutal global multi-year price war amid continued softening demand.

Bloomberg reported that BYD slashed prices on 22 of its electric and plug-in hybrid models by as much as 34% in an effort to revive demand.

The Seagull hatchback was reduced by 20% to 55,800 yuan ($7,780), while the Seal dual-motor hybrid sedan saw the steepest cut—down 34%, or 53,000 yuan, to 102,800 yuan.

"While some of these discounts have been in place since April, the official announcement sends a strong signal of how tough the end market is," Morgan Stanley analyst Tim Hsiao told clients. 

The discounts come as China's broader economic downturn has increased dealership stock levels. Recent data from the China Passenger Car Association showed that China had 3.5 million cars, or 57 inventory days, in April, the highest figure since December 2023. 

"We anticipate peers will follow BYD's price cut," Citi Research analysts wrote in a note. They said Chongqing Changan Automobile has already revealed a 25,000 yuan discount for its Deepal S07 model, as well as Zhejiang Leapmotor Technologies discounted its C16 full-size crossover sport utility vehicle and mid-sized SUV C11. 

Citi analysts forecast that discounts announced this past weekend could lead to a 30% to 40% week-on-week foot traffic surge at BYD dealerships. 

In markets, BYD shares closed down 6%, while Li Auto, Great Wall Motor, and Geely Automobile all closed in the red. 

"EV space continued to add weight as BYD tanked 8.6% after announcing promo discount on 22 models until end of June, worrying investors on profitability and margin," Goldman analyst Keita Umetani wrote in a note. 

Goldman analyst Shubham Ghosh told clients, "We were sellers of BYD here and also caught some selling in SOE banks."