BYD's Profits Tumble as China's Price War Affects the Leading Player
BYD
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If you haven’t been disconnected from the world for most of the last decade, you likely know that China has been heavily supporting its domestic auto industry through subsidies. While this strategy has yielded measurable results, signs of stress within the industry’s economic framework have been evident for some time and seem to be worsening.
As reported by Reuters, BYD, China’s largest automaker, experienced a decline in profits last quarter for the first time in over three years. In the same financial report, the company admitted that July marked its third consecutive month of falling sales. Initially, BYD anticipated selling 5.5 million cars in China this year; however, it now appears they are on track to fall short of that goal by over a million units.
The issue for China? A lack of consumers. While subsidies have led to an abundance of affordable vehicles (both gas-powered and electric; this isn’t limited to just EVs), manufacturers are producing significantly more cars than their dealerships can sell, resulting in losses for everyone involved. This overproduction began impacting sales at the end of 2024 and the situation seems to be deteriorating.
Moreover, as previously mentioned, this situation isn’t solely caused by Chinese automakers overwhelming the market with inexpensive, low-quality electric vehicles. A significant portion of the excess inventory consists of traditional internal-combustion vehicles, which aligns with the needs of specific markets (primarily Russia, Central Asia, and the Middle East, according to Reuters in June).
BYD was among several manufacturers that recently committed to improving their timeliness in payments to suppliers—a clear indication that there are concerns regarding unpaid debts. Surely, this isn’t a cause for alarm, is it?
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BYD's Profits Tumble as China's Price War Affects the Leading Player
China has effectively financed a significant growth in its automotive sector, resulting in having more vehicles than buyers.