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China’s largest electric vehicle maker BYD reported a sharp slowdown in earnings growth for the first half of 2024, as a prolonged price war has hit companies in the world’s largest car market.
Net profits for the six months to June 30 were Rmb13.6bn ($1.9bn), up 24 per cent from a year earlier, the company said in a stock exchange filing on Wednesday. That compared with a threefold surge in first-half profits in 2023.
The Shenzhen-based group overtook Toyota and Nissan to become the world’s seventh biggest carmaker by sales volume in the three months to June. However, the record delivery of 98,000 units in the quarter translated into lower-than-expected revenues of Rmb176.2bn, according to FT calculations.
BYD’s integration of various parts of its supply chain, extending from battery to computer chip production, has long given the group an edge to push down costs. The company rolled out multiple rounds of price cuts since the start of the year, taking some the brand’s hybrid models into the low-budget segment below Rmb100,000, dominated by petrol-powered cars made by foreign brands.
China’s auto industry is faced with a “complex macro environment” and “greater inventory pressure”, said the Warren Buffett-backed company’s management, acknowledging the challenges in an interim report.
“Fierce domestic competition is eroding Chinese EV makers’ profitability despite strong demand. This challenge, along with their desire to build scale, are driving them to expand to overseas markets,” said Gerwin Ho, a vice-president at Moody’s Ratings.
However, the outlook for Chinese EV makers’ global expansion has been complicated by tariffs introduced by western countries. Canada on Monday became the latest country to increase tariffs on imported China-made EVs, following similar actions by the US and the EU.
BYD’s management on Wednesday said it would continue to provide global consumers with “differentiated and competitive products and quality services” despite rising “protectionism”.
“Barriers against more competitively priced Chinese EV imports erected by the US and EU are pushing Chinese EV makers to focus on emerging markets,” added Ho from Moody’s Ratings.
In July, BYD opened its first wholly-owned overseas factory in Thailand and signed a partnership with Uber to bring 100,000 EVs to the ride-hailing platform’s fleets around the world.
The group expects “nearly half” of its sales to come from overseas markets in the future, executive vice-president Stella Li told Bloomberg. In the first seven months of 2024, BYD sold 270,000 cars overseas, on track to meet its full-year target of 500,000 units that accounts for roughly 14 per cent of its overall total.
BYD is not the only Chinese car manufacturer that is feeling the profit squeeze from a cut-throat price war in its home market, where Tesla fired the first opening salvo more than a year ago.
Li Auto, which became the world’s third EV maker to turn a profit last year, on Wednesday reported a net income of Rmb1.1bn for the second quarter, missing the Rmb1.82bn Bloomberg analyst consensus and representing a 52 per cent year-on-year fall. The Beijing-based start-up marked down prices across its car line-up in April.
Hong Kong-listed shares in BYD closed down 2 per cent on Wednesday, while US-listed shares in Li Auto opened down 8 per cent.
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