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China’s largest electric vehicle manufacturer, BYD, experienced a significant slowdown in earnings growth for the first half of 2024 due to an extended price war impacting companies in the world’s largest car market.
According to a stock exchange filing on Wednesday, net profits for the six months ending on June 30 were Rmb13.6bn ($1.9bn), a 24% increase from the previous year. This growth rate was notably lower than the threefold surge in profits seen in the first half of 2023.
Despite becoming the world’s seventh-largest carmaker by sales volume in the second quarter, BYD’s record delivery of 98,000 units resulted in lower-than-expected revenues of Rmb176.2bn, as calculated by FT.
The company’s cost-saving advantage, stemming from its integrated supply chain spanning from battery to computer chip production, was offset by multiple price cuts implemented since the beginning of the year. These price reductions positioned some of BYD’s hybrid models in the sub-Rmb100,000 segment, traditionally dominated by petrol-powered cars from foreign brands.
BYD’s management acknowledged the challenges posed by a “complex macro environment” and “greater inventory pressure” in an interim report, attributing the erosion of profitability for Chinese EV makers to intense domestic competition despite strong demand.
Gerwin Ho, a vice president at Moody’s Ratings, highlighted the drive of Chinese EV makers to expand to overseas markets in response to these challenges. However, the imposition of tariffs by western countries has complicated the global expansion outlook for Chinese EV manufacturers.
Despite rising protectionism, BYD’s management remains committed to offering differentiated and competitive products and quality services to global consumers. The company’s focus on emerging markets is driven by barriers against competitively priced Chinese EV imports in the US and EU.
In a strategic move, BYD inaugurated its first wholly-owned overseas factory in Thailand in July and forged a partnership with Uber to introduce 100,000 EVs to the ride-hailing service’s fleets worldwide. Executive Vice President Stella Li anticipates that nearly half of BYD’s sales will originate from overseas markets in the future.
BYD is not alone in grappling with profit margins amid a fierce price war in the Chinese market, initiated by Tesla over a year ago. Li Auto, the third EV maker to achieve profitability last year, reported a net income of Rmb1.1bn for the second quarter, falling short of analysts’ expectations and representing a 52% year-on-year decline.
Shares of BYD on the Hong Kong stock exchange closed 2% lower on Wednesday, while US-listed shares of Li Auto opened 8% down.