BYD kicks off Chinese EV discount derby

The world of electric cars in China just got a lot more nerve-wracking for automakers. BYD has decided to make its already affordable electric cars even cheaper, kicking off what many are calling another intense price war.

China is the biggest automotive market on the planet. Nearly half of all new cars sold in China are now either fully electric or plug-in hybrids. To put that in perspective, the United States is trailing far behind, with less than 10 percent of its new car sales being electric. How did China get so far ahead, so fast? A big part of the answer is simple: cheap electric vehicles.

BYD is making some serious cuts. The BYD Seagull (Dolphin Surf in Europe) hatchback, which was already affordable, costing less than $10,000, saw its price chopped by 20 percent. It now sells for RMB 55,800, which is about $7,780. The biggest discount, however, went to the BYD Seal dual-motor hybrid sedan. Its price was slashed by RMB 53,000, bringing it down to RMB 102,800 (approximately $14,280). In total, BYD announced discounts on 22 of its electric and plug-in hybrid models, valid until the end of June.

The pricing strategy didn't go unnoticed by investors, and BYD's own stock dropped by as much as 8 percent after the news broke. Other major Chinese EV players like Li Auto, Great Wall Motor, and Geely Automobile Holdings also saw their stock prices fall by more than 5 percent. Investors are clearly worried that this price war will squeeze profits across the board.

The sales of electric cars have been hitting new highs each year, but the speed of that growth has started to slow down. Carmakers are now finding themselves with a lot of unsold cars. Last month, dealerships reportedly had about 3.5 million cars sitting on their lots, enough to last 57 days based on current sales rates. That's the highest inventory level since December 2023.

Industry analysts expect BYD's competitors to announce their own price reductions, even if it means making less money on each car sold. Chongqing Changan Automobile Co. quickly announced a cash discount of RMB 25,000 for its Deepal S07 model. Zhejiang Leapmotor Technologies Ltd. also adjusted prices for its C16 full-size crossover SUV and its mid-sized C11 SUV. Initial reports suggest BYD's strategy might be working; dealership traffic for BYD cars reportedly jumped 30 to 40 percent in the week following the price cut announcements.

The question is: how can BYD afford to slash prices so dramatically? The company has a significant advantage: it makes many of its own parts. BYD produces its own batteries and even many of its own semiconductors. This "vertical integration," combined with the sheer number of cars it produces in China, helps keep its production costs lower than many competitors.

This financial strength is evident in its profit figures. For the first quarter of the year, BYD's gross margin – the profit it makes on each car before certain costs – was around 20 percent. For comparison, Tesla's was about 16 percent. BYD's net income, or overall profit, in that same quarter jumped to RMB 9.15 billion ($1.27 billion). The company is also working to clear out older models, some of which don't have the newest driver-assist features that BYD recently announced would be added to its cars for free.

Via