BYD’s profits have significantly dropped, marking a turning point for the Chinese automotive leader. This decline, the first in over three years, is directly attributed to the fierce price war shaking China’s automotive market, exacerbated by massive state subsidies.
An Automotive Industry Under Pressure
For the past decade, China has heavily subsidized its domestic automotive industry. While this strategy has borne fruit in terms of production, it has also weakened the sector’s economic foundations. Today, the consequences are being keenly felt.
The country’s largest automaker, BYD, recorded a decline in profits last quarter. In its financial report, the company also acknowledged that July marked its third consecutive month of declining sales. While the initial target for 2024 was to sell 5.5 million vehicles in China alone, BYD is now on a trajectory that could fall short by over one million units.
The Core Problem: Overcapacity and Lack of Buyers
A Saturated Market
The central issue is simple: excessive supply facing insufficient demand. Subsidies have led to massive production of affordable vehicles, whether with internal combustion engines or electric powertrains. Manufacturers are flooding the market far beyond what dealerships can sell, forcing everyone to slash their margins.
The Impact of Dumping Practices
This dumping phenomenon, already visible in late 2023, is only worsening. Contrary to popular belief, it’s not just about low-end electric vehicles. A significant portion of the stock exported abroad, particularly to Russia, Central Asia, and the Middle East, consists of internal combustion engine models tailored to these markets’ demands.
Economic Warning Signs
A worrying indicator highlights tensions in the supply chain: BYD is among the manufacturers that recently signed a commitment to better adhere to payment deadlines for its suppliers. This initiative, although presented positively, raises questions about the financial health of the entire industrial ecosystem and concerns over unpaid receivables.