Life atop China’s car market starting to look shaky for BYD

Hong Kong – Life at the top is proving complex for China’s leading automaker, and there are fresh challenges on the horizon.

BYD’s monthly sales have stagnated of late and with the summer months being a traditionally slower time for consumer purchases, that trajectory is not expected to reverse any time soon. 

Discounting is also now being looked sternly upon by Beijing, with China last week pledging to rein in “irrational competition” in the electric vehicle (EV) sector, reflecting the authorities’ wish to tackle the deflationary price wars that are threatening economic and industrial growth.

Some of BYD’s international forays are also proving more challenging than expected, raising the question: Is China’s No. 1 automaker on shaky ground?

Analysts are now doubting whether BYD can hit its 5.5 million units sales target for 2025, in what would be a rare miss after a multi-year bull run.

The number of electric and hybrid vehicles BYD needs to sell each month through December has hit 560,000 units, in excess of levels it could hope to achieve typically in a single month. The most vehicles BYD has ever sold in a month was just shy of 515,000, in December 2024.

Deutsche Bank earlier in July said it now expects five million in wholesales, or deliveries to dealers, for 2025, comprised of four million domestic units and one million overseas, while Morgan Stanley in June lowered its projection to 5.3 million, pointing to a smaller number of new models.

Bloomberg Intelligence’s Joanne Chen says BYD will need to sacrifice some profit and maintain its hefty discounting in the second half if it wants to stay on track.

“Regulatory scrutiny will temper direct cuts to vehicle sticker prices, but competition isn’t going away and retail promotions are still needed to sustain sales momentum,” she said. “New model roll-outs and steady tech upgrade are also crucial.”

Ms Bing Yuan, a fund manager at Edmond de Rothschild Asset Management, said many market watchers now realistically expect sales of around five million. “My sense is that is the consensus,” she said.

Stripping out overseas and commercial sales, BYD’s core car deliveries in China are shrinking. In June, they slipped 8 per cent year on year as vehicles from brands like Zhejiang Geely Holding Group, Xpeng and Xiaomi won over buyers.

HSBC Holdings data shows that Geely was the largest gainer of market share in the first half, while BYD was among the biggest losers.

Overseas sales are faring better – those look on target to reach BYD’s forecast of 800,000. Indeed, BYD is already almost 60 per cent of the way there. But while higher margin international sales will help BYD offset aggressive domestic discounting, some foreign markets are presenting new difficulties.

BYD has grand plans for Saudi Arabia, for example, hoping to triple its footprint after Tesla entered the country. But EVs account for just over 1 per cent of total car sales in the kingdom, with high costs, sparse charging infrastructure and extreme temperatures challenging EV adoption.

India, a potentially huge market, has meanwhile consistently blocked BYD’s efforts to expand, and despite rapid growth from a low base in Europe, there are substantial tariff headwinds and increasing competition from legacy automakers that already have consumers’ trust, not to mention more extensive after-sales networks.

At home, regulatory scrutiny has also intensified around BYD as it continues to be at the fore of an EV price war. In late May, it slashed prices by as much as 34 per cent, triggering renewed sector-wide discounts. Its moves were later discouraged in a veiled warning by the Communist Party of China’s mouthpiece the People’s Daily, which slammed the “rat-race competition”.

Whether Beijing can actually stop price discounting by a privately held company is a point of debate.

Mr Tianlei Huang, a China programme coordinator at the Peterson Institute for International Economics, said the authorities may resort to administrative tools such as price reviews or cost investigations to establish a de facto price floor, or coordinate a concerted capacity reduction among leading EV makers, although he acknowledged those measures will not be easy.

Regardless, BYD must be careful. As the company gears up to release first-half results in August and July sales data within weeks, analysts will have their spreadsheets at the ready, waiting to see whether those 2025 targets look even further in the distance. BLOOMBERG