BYD Limited’s stock price has dropped by over 17% in the past week, sparking concerns in the market that BYD’s price reduction measures may trigger government scrutiny and pose challenges for the Chinese electric vehicle industry.
According to a report by Bloomberg on June 2nd, BYD initiated a fierce price war in the Chinese automotive industry, impacting profits and casting a shadow over the prospects of the Chinese automotive sector. Despite achieving a record monthly sales volume in May of 382,476 units, a 15% year-on-year increase, it marks the lowest growth rate since August 2020, excluding the drop in deliveries last February due to the Chinese New Year holiday.
BYD introduced a remarkable “limited-time fixed price” promotion for its 22 pure electric and plug-in hybrid models, with discounts of up to 34%, which will continue until the end of June. The entry-level “Seagull” hatchback saw its starting price reduced from 69,800 yuan to 55,800 yuan, a decrease of about 20%, while the high-end “Seabird” dual-motor hybrid sedan received an even higher discount, dropping from 155,800 yuan to 102,800 yuan, a significant reduction of 53,000 yuan, representing a 34% discount.
The price reductions have added to the already fiercely competitive Chinese automotive market. With the Chinese economy continuing to slow down and competitors catching up, BYD aims to boost its sales. In April, Geely’s compact hatchback “Starwish” surpassed BYD’s “Seagull,” becoming the best-selling model in China. Smartphone manufacturer Xiaomi is also aggressively expanding into the automotive sector.
The Financial Times reported that the price war will pose a double blow to smaller and financially weaker car manufacturers – not only damaging profits but also potentially further eroding market share.
Victor Sun, a senior stock analyst at Morningstar, previously stated to CNBC, “We expect BYD’s automotive profit margins to come under pressure in the short term because I believe this move is driven by the need to meet sales targets.”
Morgan Stanley analyst Tim Hsiao mentioned that the new pricing strategy could trigger a “prolonged price war” and may lead to a chain reaction lasting through the second half of this year. Bloomberg industry research analyst Joanna Chen indicated that other brands will either have to increase discounts or relinquish market share.
Victor Sun told CNBC, “Retail discount levels in the first quarter of 2025 are still high. Given the expected continuation of the price war, we believe the industry’s profitability will face certain pressures in the short term.”
The price war may also negatively impact German manufacturers like Volkswagen, Mercedes-Benz, and BMW, whose sales in China have declined, partly due to their refusal to significantly lower prices like their Chinese competitors. Financial news website Benzinga reported that experts like Gary Black from Future Fund LLC pointed out that BYD’s price war could threaten Tesla’s position in China.
The price cuts also reflect some concerning trends in the Chinese automotive market. Despite ongoing discounts, dealer inventory levels surged to their highest since December 2023 in April.
Another area of concern is the so-called “zero-mileage” used car sales. Bloomberg cited Long Weiqiang, Chairman of Great Wall Motors, stating that some manufacturers may inflate sales figures by selling cars to financial companies and used car dealers, which appear as zero-mileage vehicles in the secondary market. Even if end-users do not purchase them, manufacturers record these sales figures.
It is currently unclear if this strategy is legal in China. However, this phenomenon may mask the slowdown in sales of new energy vehicles, a problem that the Chinese authorities are deeply concerned about. Last week, Long Weiqiang warned that due to years of sustained price wars, the outlook for the Chinese automotive industry is not optimistic.
Qiancheng Holdings, a major BYD dealer in Shandong, achieved an annual revenue of 3 billion RMB and employed 1,200 staff in the past. However, since the beginning of this year, several of its stores in cities like Ji’nan, Weifang have closed, leaving many consumers stranded with prepaid service warranties and facing uncertainty regarding after-sales service.
CNBC reported that Morgan Stanley analyst Tim Hsiao suggested that this sales promotion signals weak end-demand, which is likely to heighten concerns in the market about a new round of price wars.