The fallout is becoming impossible to ignore in the fierce battle among Chinese carmakers.
With BYD reporting a staggering 30 per cent plunge in quarterly profit last Friday (Aug 29), its first decline in over three years, it’s become clear that not even dominant players are safe in the cutthroat battle for market share.
Despite robust overseas sales, BYD’s net income of 6.4 billion yuan (S$1.2 billion) for the three months to Jun 30 fell short of analysts’ estimates for a modest increase. Heavy discounting saw BYD’s gross margin contract to 18 per cent from 18.8 per cent in the first half of 2024, although that figure is still among the top in the industry, exceeding rivals such as Zhejiang Geely Holding Group and Chery Automobile.
The Shenzhen-based giant blamed “industry malpractices” and “excessive marketing” for pressuring its bottom line, an ironic twist considering BYD has been a major driver of the price war, leading multiple rounds of cuts since 2023, including its latest in May. Its most recent discounting campaign prompted the government to warn automakers off “rat-race competition”, saying that price wars can affect supply-chain security and seriously damage the international reputation of “Made-in-China”.
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When did the Chinese government forbid that?
Local Chinese governments even actively promote this practice, at least until July (at least until end of July, so even if it's forbidden now - which is not to my knowledge - this couldn't explain BYD's trouble). In several cities (Beijing, Shanghai, Guangdong, and also Tianjin and Xi'an), local officials heavily promote and allow to sell such 'used' cars overseas as it helps to meet the officials' output target.
This is also in line with BYD's current numbers as sales numbers increase while the profits are in free fall. It is BYD's and other Chinese automakers' structured, intentional overproduction followed by a "recent discounting campaign" that causes the trouble, according to the article, and we have been watching such - to use BYD's word - "malpractice" in practically all industries in China.