Automakers beware: BYD can still afford to cut prices

Just when China’s electric car prices seemed like they could go no lower, BYD has announced one of its most aggressive rounds of price cuts yet. It is slashing prices of its Seagull EV hatchback by another 5 per cent to less than $10,000. It is one of the few EV makers that can afford to stay in the intensifying global EV price war.

BYD, which last month said it was “officially opening a new era of electricity that is lower than oil”, is discounting nearly all the electric and hybrid car models it has on the market. The most dramatic cut is a fifth off the price of its top-selling Qin Plus sedan; it now has a starting price of about $11,000, undercutting traditional leaders VW’s Lavida and Toyota’s Corolla in the local market.

Fresh competition adds to the urgency to slash prices. Local automaker Geely Automobile Holdings set a sales volume record for its new-energy vehicles last year, helping its earnings beat estimates. Zeekr, the premium electric automobile brand owned by Geely, is looking into going public in the US, which would give it fresh funds to expand globally. EV rival Xpeng has announced plans to launch a cheaper brand, with its models set to be priced at a starting point of $13,890.

For BYD, which on Tuesday reported its slowest quarterly profit growth in two years, its heavy discounting strategy has proved effective in capturing market share. Previous price cuts prompted a fresh surge of new sales. New-energy vehicles, which include pure battery EVs and plug-in hybrids, accounted for more than a third of all new car sales in February. There is further room for growth at home as EV take-up in regional cities is still in the early stages.

With annual sales exceeding 3mn cars, BYD’s volume allows it to cut prices while maintaining profitability, a feat given that most battery EV-only manufacturers are loss making. BYD’s mainland-listed shares are up 14 per cent this year, reflecting improving margins over the past two years, with gross margins at 19 per cent.

Operating margins remain slimmer than those of traditional carmakers. Compared with EV-making rivals, however, BYD has scope to sacrifice short-term profits to try to win a cut-throat battle for market share. At 16 times forward earnings, its shares still trade at a discount to global peers. There is room for growth.

© The Financial Times Limited 2024.
All Rights Reserved. Not to be redistributed, copied or modified in anyway.

Money.it has hosting rights to certain limited Financial Times articles. This is not a live feed of Financial Times content.