A renewed EV price war launched by BYD Co. has shaved more than $20 billion off its market value in just two weeks, as skepticism over the top Chinese automaker’s strategy takes some steam out of its big rally.

Concerns are growing over BYD’s ability to meet its sales target of 5.5 million vehicles this year, with its latest features drawing lukewarm consumer response in China’s sluggish economy. Rivals including Xpeng Inc. and Zhejiang Leapmotor Technology Co. have gained market share, and their stocks have outperformed.

Hong Kong-listed shares of BYD have dropped 13% from their recent record high as investors worry about competition denting its profits. The stock has become more expensive, losing some of its valuation appeal, and short interest has crept back up to around a three-month high.

“The recent correction in BYD’s share price reflects a combination of margin pressure concerns and weakened sentiment across the EV sector,” said Andy Wong, investment director for Asia Pacific at Solomons Group in Sydney. “Aggressive pricing alone no longer guarantees a strong sales lift, particularly in a more mature and competitive EV market.”

BYD slashed prices in China by as much as 34% last month, the latest round of deep discounts in a battle now stretching into its third year. Sales have slowed overall and new entrants like Xiaomi Corp. and Huawei Technologies Co. have dialed up the competition.

The industry is even drawing scrutiny from the government, which summoned the heads of major EV makers including BYD earlier this week and told them they shouldn’t sell cars below cost or at unreasonable discounts. BYD shares fell as much as 2.7% Friday.

Even with its lowered price tags, BYD has achieved just 32% of its 2025 sales target as of the end of May. It scored limited success with its attempt to lure consumers by offering its God’s Eye driver-assistance system at no extra cost for some models.

Meanwhile the likes of Xpeng, Leapmotor and Geely Automobile Holdings Ltd. are winning mass-market customers with more compelling features as well as low prices. Geely’s electric Xingyuan hatchback and Xingyue L sport utility vehicle are among the best-selling vehicles in China, while Leapmotor’s May deliveries more than doubled the year-ago level.

Source: Morgan Stanley Research

The price wars will likely result in industry consolidation much like the last round, though it will be more difficult “as surviving players now have scale, balance sheet strength and competitive products,” according to Bing Yuan, a fund manager at Edmond de Rothschild Asset Management. “Things will likely get worse before getting better. That said, BYD could still come out ahead.”

Hong Kong-listed shares of the company are still up 53% this year, though that trails gains of more than 60% for Leapmotor and Xpeng. BYD is now trading at about 19 times forward earnings estimates, up from 14 times earlier this year.

Exports have been a bright spot, with BYD notching record overseas deliveries so far this year, allowing the company more cushion as it competes at home. But Edmond de Rothschild’s Yuan notes it also implies “domestic sales are under even heavier pressure than the market anticipated, especially heading into a traditionally softer Q2.”

Bearish bets on BYD have risen, with short interest at 4.4% of free float, compared with a low of 0.3% earlier this year, according to S&P Global data. Sell-side analysts are still overwhelmingly positive, however, with some noting that the big discounts are a necessary evil.

“We see the recent price cut promotion more as a near-term marketing scheme in order to drive foot traffic during a period of low sales seasonality,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital. “We believe BYD is fully aware that price cuts are not a sustainable strategy for long-term growth.”