Chinese Carmakers’ Shares Plummet as BYD Sparks Price War
Shares in Chinese carmakers, including BYD, Geely, Li Auto, and Xpeng, took a significant hit on Monday, following BYD’s announcement of a fresh round of price cuts on over 20 models. The move is seen as a bid to maintain market share, but at the expense of profit margins.
According to a report by the Financial Times, Hong Kong-listed shares in BYD fell nearly 9 per cent, while its rivals Geely, Li Auto, and Xpeng lost 7 per cent, 5 per cent, and 4 per cent respectively. The price cuts, which came into effect over the weekend, brought the price tag of BYD’s cheapest model, the pure battery-powered Seagull hatchback, to as low as Rmb55,800 ($7,770).
The largest discount, a significant 34 per cent reduction, was applied to the Seal 07 plug-in hybrid sedan, which received a Rmb53,000 markdown on its original price of Rmb155,800. According to Citi analysts, the "fixed price" campaign is expected to help BYD’s second-quarter shipments grow 20 to 30 per cent from the previous quarter. As the Financial Times reports, Citi analysts noted that "BYD . . . is able to register Rmb9,000 net profit per vehicle in the second quarter," which is below the full-year net income per unit guidance of Rmb10,000 provided by BYD management to analysts last month.
The price war in China’s automotive market has been intense, with state-owned Changan offering a cash discount worth about 15 per cent on its S07 sport utility vehicle under its sub-brand Deepal. Stellantis-backed Leapmotor also unveiled similar "fixed prices" for its C16 and C11 cars over the weekend, amounting to 28 and 30 per cent cuts respectively. As Financial Times contributor Li Yanwei, a member of the China Automobile Dealers Association, noted, "BYD holds significant pricing power in the market, so each round of its price cuts is set to prompt other car brands to follow suit, which will further intensify market competition."
The bruising price war in the world’s largest auto market has weighed on companies’ earnings and accelerated industry consolidation over the past two years. China’s development commission, the top national economic planning agency, warned against a "rat race" last week, with spokesperson Li Chao stating that "some companies . . . have adopted an ultra-low pricing strategy — even selling below costs." The Financial Times reports that Li Chao added that these practices "exceed the boundaries and bottom lines of market competition, distort market mechanisms, and disrupt fair competition, which requires corrective action."
In related news, BYD’s stock had hit a record high last week on news that it had outsold Tesla in Europe for the first time. However, the company’s focus on maintaining market share through aggressive pricing strategies has raised concerns about the sustainability of its business model. As the Financial Times notes, investors have seen BYD’s move as a bid to protect its dominant market share, but at the expense of margins. Meanwhile, smaller participants with weaker cash positions risk a double blow — losing both profits and market share.
The ongoing price war in China’s automotive market is set to have significant implications for the industry, with many companies likely to be affected by the intense competition. As the Financial Times reports, the situation has sparked concerns about the long-term sustainability of the current business model, and the need for companies to find a balance between maintaining market share and protecting profit margins.
