BYD, the prominent Chinese automaker, has reported a significant 30 per cent drop in quarterly profit, marking its first decline in over three years. This downturn underscores the intense competition within the Chinese car market, where even leading players are feeling the pressure of fierce price wars. BYD specialises in electric vehicles, batteries and other renewable technologies. The Shenzhen-based giant’s setback comes despite expanding its global presence.
For the three months ending June 30, BYD’s net income amounted to 6.36 billion yuan ($US892 million), falling short of analysts’ expectations. The company attributed the profit decline to “industry malpractices” and “excessive marketing,” despite BYD itself having initiated multiple rounds of price cuts since 2023. This discounting has squeezed the company’s gross margin to 18 per cent, down from 18.8 per cent in the first half of 2024.
Despite margin pressure, BYD’s overseas revenue, excluding Hong Kong, Macau and Taiwan, increased by 50 per cent in the first six months of the year to 135.4 billion yuan. The brand has made significant inroads into markets such as Brazil, Australia, Singapore, and parts of Europe. However, analysts at Stanford C. Bernstein noted that increased promotional efforts failed to achieve anticipated volume growth, and higher capital expenditure further weighed on margins. They maintained an outperform rating but lowered the target price.
In addition to weakened gross margins, BYD’s net profit attributable to shareholders increased at a slower rate, while borrowings rose to 39.1 billion yuan. The company’s latest financial statements indicate it is expediting payments to suppliers, contrasting with its previous practice of taking an average of 275 days to pay suppliers in 2023. Research and development expenses are also up more than 50 per cent year-on-year.
