Price war in China: BYD is struggling with 340,000 unsold electric cars!

Price war in China: BYD is struggling with 340,000 unsold electric cars!

There is currently an intense price war in the Chinese automotive industry, which is pushing the industry into a dangerous downward spiral. How NZZ reports that market leader BYD has reduced prices for numerous models by up to 34 percent. This comes in an environment where the industry suffered a 9.1 percent year-on-year decline in profits in May 2023 and consumer prices have already fallen for four months in a row.

The price war is the result of massive government subsidies and an aggressive drive for expansion, promoted by China's state and party leader Xi Jinping. However, these policy measures have led to excess capacity in many industries. Local governments have continued to provide financial incentives to support growth in emerging sectors such as electric vehicles. However, these same measures have also created inefficient capacity that cannot be absorbed in the market.

Overproduction and inventory levels

BYD is currently faced with overproduction of over 340,000 unsold vehicles, which is causing the company enormous difficulties. Loud n-tv BYD's inventory is calculated to last more than three months. To overcome this challenge, the company has throttled movements at several plants and offered massive discounts to boost sales. Still, analysts cautioned that BYD may be more indebted than it appears as liabilities to suppliers rise.

The average capacity utilization in the sector is below 50%, despite the increasing number of new manufacturers in recent years. In the first quarter of 2023, the Chinese electric car market grew by 45%, while BYD only grew by 5%. This discrepancy between market growth and company performance is leading to growing concerns about the financial stability of BYD and the industry in general.

Government measures and future outlook

The Chinese government has already taken immediate action to stop “disorderly price competition.” Leading electric car makers have been summoned to Beijing to stop aggressive discounting and promote industry consolidation. In addition, a manager warns that an “Evergrande of the auto industry” could be on the horizon, which indicates possible bankruptcies.

These developments are not only worrying for the companies themselves, but also pose a threat to the entire industry, which operates in a highly competitive environment characterized by protectionist measures between different Chinese cities and provinces. Only BYD was able to operate profitably in the current situation, while the profits of all manufacturers were reduced by 11.9 percent compared to the previous year.

Challenges in China's auto industry point to an uncertain future in which consolidation measures and price stabilization could be crucial to avoid corporate bankruptcies and associated social unrest.