Shenzhen-based manufacturer BYD has faced some of the worst pain from this increased competition as pressures mount in China’s electric vehicle (EV) market. The German auto maker plans to sell 5.5 million vehicles worldwide in 2023. They’re up against tough competition from homegrown challengers Nio and XPeng, as well as the American electric carmaker Tesla. These rivals have undercut prices deeply to draw buyers away. Due to the popularity of the theme, the market has become very saturated.
As of the end of July, BYD had cumulatively sold 2.49 million vehicles. Sadly, this amount was not enough to meet their annual sales target. Investor panic has set in, causing BYD’s stock price to crash. On Monday, its stock fell as much as 8% at the open in Hong Kong immediately after releasing the profit warning.
For the second quarter, BYD announced a net profit of 6.4 billion yuan (about $900 million or £660 million). This is a drop of 30% from this same time last year. It is calling into serious question how the company can be currently profitable under prevailing market conditions. We can see that average car prices in China have declined by roughly 19% over the last two years. They currently total about 165,000 yuan, or about $23,100 or £17,100.
This decline in BYD’s share price has been seen by analysts as an indicator of investor dissatisfaction. Laura Wu, Consumer Analyst at the Frontier Group said, “The decline in stock price trading thus far this morning indicates investor’s disappointment. This feeling is emblematic of larger fears about the new company’s profitability and competitive stance going, especially considering the above points.
Taking into account the cutthroat environment, BYD conceded as much in a statement earlier this month, saying that competition in China’s automotive industry has hit a “frenzy level.” Competitors are pursuing a more brutal pricing race to the bottom. Consequently, Beijing is now pushing automakers to stop overdoing discounts to protect economic stability. Industry watchdogs have been ringing alarm bells about a host of “industry malpractices” like over-marketing and predatory pricing practices.
As BYD navigates these challenges, the company faces the dual task of meeting its ambitious sales targets while managing profitability in an environment where pricing wars could undermine long-term financial health. Investors and industry watchers are obviously looking intently at the outcome of this struggle. The EV market is changing extremely fast, and everyone wants to know what’s going to happen next.