BYD unleashes the EV industry thinking that warning
The price war involving China’s electric vehicle industry has plunged stock prices and prompted an extraordinary level of intervention from Beijing. Maybe you’re just starting to shake out.
For all the efforts of the Chinese government to prevent price cuts by market leaders byd As Co. turns into a vicious spiral, analysts say the combination of weaker demand and extreme overpower will be sliced into profits at the most powerful brand, forcing the passionate competitors to fold. Even after counting the number of EV makers that first began shrinking last year, the industry is still using less than half its capacity.
Chinese authorities are trying to minimize fallout and are chitting the sector for “rat race competition.” Summon the chiefs of major brands In Beijing last week. However, previous attempts to intervene were largely unsuccessful. In the short term, at least, investors are betting that automakers will rarely escape unscathed. BYD is perhaps the biggest winner of industry consolidation, losing its market value of $21.5 billion since its stock peaked in late May.
“What you’re looking at in China is bothering me because there’s a lack of demand and extreme price reductions,” he said.John Murphysenior auto analyst Bank of America Corp. will ultimately have “large integration” to absorb excess capacity, Murphy said.
For automakers, merciless discounts undermine profit margins, brand value, and even capitalized companies become unsustainable financial situations. Low-cost, low-quality products can seriously undermine the international reputation of “made in China” cars, an outlet controlled by the Communist Party. And that knock will start to attract acclaim on the world stage, from BYD to Geely, Zeekr and Xpeng models.
To consumers, a price drop may seem beneficial, but it hides a deeper risk. Unpredictable pricing is hampering long-term trust. Already people have complained to Chinese social media and wondered if they should buy a car now when it’s cheaper next week – carmakers, even if they’re floating, have the opportunity to cut their investments in quality, safety and after-sales services.
According to anyone familiar with the issue, car CEOs have to “self-regulate” last week and “self-regulate” them, and should not sell cars below the cost or offer unfair price reductions. Problem Zero Millage Cars have also appeared. There, vehicles with no odometer distances are sold by dealers to second-hand markets, widely seen as a way for automakers to artificially inflate sales and clear inventory.
Chinese automakers have been far more aggressively discounted than foreigners.
Murphy said US automakers should just go outside. “Tesla You probably need to be there to compete with those companies and understand what’s going on, but there are a lot of risks out there. ”
Others don’t leave no doubt that BYD, the largest car brand in China, is the perpetrator.
“It’s clear to everyone that the biggest players are doing this,” said Jochen Siebert, managing director of Auto Consultancy JSC Automotive. “They want a monopoly that everyone else gives up.” BYD’s aggressive tactics raise concerns about potential car dumping, dealer management issues, and “squeezing suppliers.”
Price confusion is also unfolding against the backdrop of considerable overpower. The average production utilization rate in China’s automobile industry was only 49.5% in 2024. Data compiled by the Shanghai-based Gasgoo Automotive Research Institute show.
Meanwhile, an April report by Alixpartners highlights the fierce competition that is beginning to emerge between new energy vehicle manufacturers and companies producing pure battery vehicles and plug-in hybrids. In 2024, the market was first merged among brands specialised by Nev, with 16 being sent out and 13 being released.
“China’s automobile market is growing at a slower rate despite its substantial size. Automakers must now list their top priorities in gaining more market share.” Ron Zhengsaid a partner at global consulting firm Roland Berger Gmbh.
Jiyue Auto shows how quickly things change. Over a year after launching the first car, the automaker has been supported by a joint name. Zhejiang Geely Holding Group Co. and Technology Giant Baidu Inc. have begun to cut production and seek fresh funds.
It’s a dilemma for all automakers, but especially small. “If a large company moves prices, if they don’t follow the lawsuit, they could lose the opportunity to stay at the table,” says Alixpartners consultant.Jang Yi ChaoI said. He added that China’s low capacity utilization, which “basically fuels” the competition, is now subject to more pressure from export uncertainties.
Pushing to find outlets for overproduction is thrust into exporting more Chinese brands, but international markets can only offer some relief.
“The US market is completely closed and if Chinese automakers see an invasion, Japan and South Korea could soon be shut down,” Sheebert said. “Russia, which was last year’s biggest export market, is now extremely difficult. And we don’t see Southeast Asia as an opportunity anymore.”
Pressure to cut costs has led analysts to raise concernsSupply Chain Finance Risks.
Demand for BYD’s price cuts on one of its suppliers late last year attracted scrutiny about how the automotive giant is using supply chain financing to cover up balloon debt. Reports by accounting consulting company GMT Research PutBYD’s true net debtIt is close to 323 billion yuan ($45 billion) compared to the 27.7 billion yuan in the book as of the end of June 2024.
The pain is also bleeding into the Chinese butler network. There are two state dealer groupsIt’s gone out of businessBoth have been selling Byd cars since April.
Last week’s meeting between Beijing and the automaker was not the first attempt at a ceasefire. Two years ago, in mid-2023, 16 major automakers including Tesla Inc., BYD and GeelyI signed an agreementto avoid “abnormal pricing,” witnessed by the Chinese Automobile Manufacturers Association.
However, within days, Caam removed one of four commitments, saying that reference to the pledge’s pricing was inappropriate and violated the principles declared in the country’s antitrust laws.
The discount continued unabated.
This story was originally introduced Fortune.com