How can BYD find a way out of the price war? Nikkei Chinese Network

BYD’s new PHV launched in May attracted consumers’ attention due to its reasonable price (June, Shenzhen, Guangdong Province)

BYD, a major Chinese automaker, is experiencing a slowdown in growth. Although net profit for the January-June period of 2024 increased by 24% year-on-year due to cost cuts, revenue from the auto business grew by only 9% due to price competition initiated by itself. BYD is eager to expand sales of high-performance models and accelerate the construction of a system that can maintain profit growth even in a slowing market.

BYD’s financial report for the period from January to June released on August 28 showed that operating income increased by 16% to 301.1 billion yuan, and net profit increased by 24% to 13.6 billion yuan. The profit for the period from January to June has increased for three consecutive years.

New car sales increased by 28% to 1.61 million units, of which overseas sales of passenger cars increased by 2.7 times to 200,000 units. BYD has lowered the prices of more than 10 main models since February. The launch of new models with reasonable prices in May, such as plug-in hybrid vehicles (PHVs), the Qin L sedan with improved fuel efficiency, and the Haibao 06, also played a positive role.

On the other hand, the growth slowdown of the automotive-related business, which accounts for 80% of the total in terms of operating income, has become obvious. From January to June 2024, it was 228.3 billion yuan, with a growth rate of only 9%. This is a significant slowdown compared with the year-on-year growth of 91% from January to June 2023 and the increase of 2.3 times from January to June 2022. The average selling price of each passenger car is on a downward trend.

In the Chinese market, competition for “new energy vehicles” such as EVs and PHVs is becoming increasingly fierce. BYD, which has launched a large number of models priced around 200,000 yuan, began to cut prices in February, and its domestic competitors followed suit. According to data from the China Association of Automobile Manufacturers, from January to June, new energy vehicle sales were the highest in the price range of 150,000 to 200,000 yuan. Sales in this price range during this period reached 1.29 million units, a year-on-year increase of 16%.

“Hasn’t the motherland’s 40 years of prosperity been accompanied by competition and the continuous development of the market? In the process of competition, we have produced so many exquisite products. Our economy has taken off and our lives have changed,” BYD Chairman Wang Chuanfu said at an event held in Chongqing in June, expressing his views on the fierce competition in the domestic market.

BYD produces its own automotive batteries. As car sales have increased, it has been reducing battery production costs through mass production, ensuring overall profits. The gross profit margin of automobile-related businesses increased by 3.3 percentage points to 23.9% from January to June 2024, maintaining a high level. However, due to the burden of increased R&D expenses, the pre-sales profit margin fell by 0.3 percentage points to 5.6%.

In addition, BYD’s strategy of expanding sales by taking advantage of low prices has not worked in overseas markets. In Thailand, customers who previously purchased BYD cars have expressed dissatisfaction due to repeated price cuts on its main models. BYD has been busy dealing with the problem by providing free EV charging for one year since August.

In Europe, a major export destination, vigilance against low-priced Chinese EVs is also increasing. The European Commission, the executive body of the European Union (EU), claims that Chinese EVs are exported at unjustifiably low prices with government subsidies, and will temporarily apply additional tariffs to Chinese-made EVs starting in July.

The downward trend in growth expectations is reflected in stock prices. Compared with the beginning of 2023, when price competition began to overheat in China, BYD, which is listed on the Hong Kong Stock Exchange, has only risen by about 10%, far behind Tesla (about 80%) and Toyota (about 50%) in the United States.

To avoid overseas tariffs, BYD is rapidly expanding its production network. In July, it launched its first full-scale passenger car factory abroad in Thailand. In Europe, it plans to build a factory in Hungary within three years, and in Turkey, it plans to start a factory with an annual production capacity of 150,000 vehicles by the end of 2026. In mid-August, plans to build a factory in Pakistan also surfaced.

The company has also started to take action in the Chinese domestic market. In early August, BYD launched its first EV equipped with a high-precision sensor called “LiDAR” to improve driving assistance functions through its “Ocean” brand. The starting price of the LiDAR-equipped model is 216,800 yuan, which is high-priced among BYD brands.

On August 27, BYD announced that it would launch a new car equipped with autonomous driving technology through its high-priced brand “Fangchengbao” in cooperation with Huawei Technologies. In the future, it will become important to not only rely on price cuts, but also launch models with improved functions while ensuring profitability.

Nihon Keizai Shimbun (Chinese version: Nikkei Chinese website) Tanabe Shizuka Guangzhou

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