BYD’s $21.5b loss signals crisis in China’s EV price war

China’s electric vehicle (EV) sector is experiencing a price war that is affecting share prices and prompting government intervention.

Analysts attribute these challenges to weaker demand and overcapacity, which may reduce profits and drive some companies out of the market.

BYD, the market leader, has lost US$21.5 billion in market value since May 2024 due to aggressive pricing strategies.

The average production capacity use rate in the industry was 49.5% in 2024, according to Gasgoo Automotive Research Institute.

Overcapacity remains a major concern, leading some automakers to reduce operations or seek additional funding.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ China’s EV industry is transitioning from subsidy-driven growth to market-driven consolidation

The current price war represents a predictable phase in China’s EV market evolution, following a similar pattern to other maturing industries.

When government subsidies began phasing out in 2018, BYD saw a 31.6% decline in net profit despite increasing sales, as operating margins shrank from 5.8% to 3.3% 1.

The trend has accelerated, with 2024 marking the first year where more EV brands exited (16) than entered (13) the market, signaling the beginning of what analysts call “massive consolidation” 2.

The average production utilization rate in China’s automotive industry sits at just 49.5%, creating unsustainable pressure on manufacturers to maintain operations while competing on price 2.

This consolidation pattern is consistent with historical transitions in other automotive markets where early proliferation of manufacturers eventually gave way to a handful of dominant players as market efficiency demands increased.

2️⃣ BYD’s dual pricing strategy enables aggressive domestic competition while maintaining profitability

BYD’s ability to lead the price war stems from a sophisticated global pricing strategy that balances domestic market share growth with premium international positioning.

While cutting prices dramatically in China, BYD maintains significant markups in foreign markets. For instance, the Atto 3 sells for approximately $19,283 in China but commands $42,789 in Germany 3.