BYD is suffering its first serious scare and is seeing its success falter. The Chinese giant of electric cars that not long ago surpassed Tesla in sales has reported its first drop in more than three years, and they have presented the profits of the first and second quarter of this year and the results have left the brand with 30% less profit, standing at 6.4 billion yuan, compared to 9.1 billion in the same period last year.
And the drop has even been felt in Hong Kong, where shares fell 8%! Are we facing a price war? What is happening in China?
From star… to crashed…
The data speaks for itself, and the hit to BYD has a clear explanation: competition in the electric sector. Chinese brands have been discounting for months to gain market share, and like it or not, it has taken a toll.
According to official data, the average price of cars has fallen 19% in two years, to around $22,900. BYD itself admitted that competition, aggressive marketing, and falling prices have had a strong impact on its profitability.
The numbers are starting to worry
The working capital deficit (basically, the money you need to keep operating) has gone from 95.8 billion yuan in March to 122.7 billion in June. In addition, the level of debt compared to assets already exceeds 71%. Result: they have had to slow production and delay expansions in their Chinese factories.
And the sales targets?
BYD had set a very ambitious goal for 2025: to sell 5.5 million cars, but by the end of July it had only sold 2.49 million, not even half.
At Nomura, for example, they now believe it will stay between 5 and 5.2 million. And from Third Bridge, Rosalie Chen does not mince words: she says she sees it “unlikely” that the brand will deliver what it promised.
Europe, BYD’s lifeline
Europe appears as a breath of fresh air for the Chinese giant, in June 13,000 units were sold (a growth of 225% compared to last year).
The European Automobile Manufacturers Association has it well accounted for. And thanks to this international push, BYD’s total revenue has risen 14%, reaching 200.9 billion yuan, despite the profit crash.
Beijing intervenes in the price war
The Chinese government has decided to intervene. In May it already issued a warning to the brands, it does not want prices to continue being lowered, so if any decide to continue there will be consequences.
They have also imposed a rule that all companies in the sector must pay their suppliers within a maximum of 60 days, trying to improve overall liquidity. And although it sounds strange, not even BYD, with all its machinery, is being spared.
“The fall of BYD shows that not even the leader wins in a wild price war” Laura Wu, Nanyang Technological University
Is BYD’s reign faltering?
The blow has been huge, but the company is still the world’s largest electric car manufacturer. However, the profit drop marks a turning point. If the price war does not stabilize, the profitability of the entire sector could be compromised! Europe offers a growth opportunity, but the big challenge for BYD will be to withstand internal pressure without losing competitiveness.
Q&A
- What happened to BYD?: Reported a 30% drop in profits, the first in over 3 years
- Why the drop?: Aggressive price wars in China and falling average vehicle prices.
- How did it impact the stock?: Shares fell 8% in Hong Kong.
- Is production affected?: Yes. BYD slowed production and expansion due to high debt and working capital deficit.
- How is China reacting?: Government intervened to stop further price drops and enforce 60-day supplier payments.
