In a market rocked by fierce price wars and shifting consumer demands, Chinese electric vehicle giant BYD reported its weakest revenue growth in more than a year, raising concerns about the impact of discounting on the world's largest auto market. Despite this, the company still managed to achieve a remarkable 67% increase in revenue, reaching close to £14 billion in the three months ending in June. This growth, while substantial, marked the smallest gain since the first part of 2022, signalling potential challenges ahead.
Driving these impressive revenue figures was the surge in demand for BYD's electric vehicles, which resulted in net income more than doubling to £740m. BYD's leadership in China's EV market has been solidified by its record-breaking delivery numbers and its status as the country's top-selling auto brand. The company's first-half profit numbers jumped an astonishing 205%, reflecting its dominance in a market characterized by intense competition and slowing demand.
Despite the slowdown in revenue growth, analysts remained positive about BYD's earnings momentum, leading to a 3% increase in the company's shares on the Hong Kong stock exchange. Analysts attribute much of this success to BYD's substantial first-half profit figures and its ability to maintain its status as China's best-selling auto brand.
The Shenzhen-based automaker, whose investors include Warren Buffett's Berkshire Hathaway, has managed to withstand mounting price competition and a cooling market, maintaining its leadership in China's auto industry. It even outsold Volkswagen-branded cars in the country for the first time in October of the previous year.
Given that it has the potential to launch full EVs like the BYD Seagull close to £10,000 into the UK market – that confidence is arguably well placed. Launches like that would add to the interest already generated by products like the ATTO3 that we saw early this year.
BYD's Growth Amidst Challenges
One significant contributor to BYD's growth has been its thriving Dynasty and Ocean series of plug-in hybrid and battery-only EVs. Globally, these vehicles helped BYD achieve a historic monthly sales record in July, with deliveries passing an impressive 700,000 vehicles during the second quarter. However, this growth has not come without its challenges, as a price war initiated by rival Tesla at the start of the year has put pressure on BYD's profitability.
Since February, BYD has responded to this challenge by launching new versions of its best-selling models with prices lowered by 4% to 25%, compared to older models. This strategy aimed to counter the effects of the price war while ensuring BYD's continued market dominance. Despite the pricing pressures, BYD managed to increase its second-quarter gross profit margin to 18.73%, up from 17.86% in the first three months.
Expanding Horizons and Overcoming Obstacles
BYD's expansion has extended beyond its home market, with showrooms established in countries such as Singapore and Australia. Of the battery-only EVs sold by BYD in the first half (including the BYD Seal – below), 10% were exports, highlighting the company's global ambitions. However, Tesla remains a major competitor in this space, having sold close to 900,000 EVs globally in the same period.
As China's passenger vehicle sales experienced a decline for the second consecutive month due to economic uncertainties and limited government stimulus, BYD's strong financial performance provided a beacon of hope. The company's ability to navigate the market discounting environment by strategically cutting prices on newly released models has helped maintain its growth trajectory.
BYD's Adaptation and Innovation
In an industry undergoing rapid changes, BYD has showcased its adaptability and innovation. The company's introduction of luxury brands like Yangwang (with its U9 – see below) and Fang Cheng Bao, positioned it in the high-end EV market – allowing it to sell EVs in the >£100,000 price category. This move marked a significant departure from its traditional strategy of selling affordable cars to the masses. Additionally, BYD's launch of two cheaper models, Seagull and Dolphin, aimed to undercut competitors and appeal to a broader range of consumers.
However, as BYD solidifies its position at the top of the market, other players, both domestic and foreign, are making strides to enhance their capabilities. Smaller Chinese EV manufacturers are entering the smart EV and autonomous driving segments, attempting to challenge BYD's dominance.
Conclusion: BYD is showing continued success in a shifting landscape
BYD's recent financial performance tells a story of resilience and growth in a challenging market environment. As the company faces the pressures of intense price competition and changing consumer demands, it continues to innovate and adapt. With a focus on expanding its global reach, diversifying its product line-up and maintaining its position as China's best-selling car brand, BYD is poised to navigate the complex landscape of the EV market, proving that even amidst challenges, there are opportunities for success.
BYD products are already part of many salary sacrifice schemes in the UK – meaning that driving one is an affordable one-stop-shop experience.
WhichEV is expecting to see a number of sub-£20,000 EV models hitting the UK's showrooms before the end of next year. BYD has plenty to offer in that space, so it will be interesting to see how ‘increased choice of affordable EVs' can impact the rate at which UK drivers switch to emissions-free driving.