BYD’s dominance takes toll on smaller Chinese EV rivals

SHENZHEN: Chinese electric car maker BYD Co.’s relentless growth is squeezing out smaller rivals, with Li Auto Inc. joining fellow upstart Xpeng Inc. in releasing disappointing earnings.

In a stark highlight of their contrasting fortunes, BYD on Wednesday posted a 33% jump in second-quarter profit, while around the same time Li Auto posted a bigger-than-estimated 52% drop in earnings - sending its US-listed shares tumbling. Xpeng last week forecast third-quarter revenue well below analyst expectations amid a bruising price war in China.

Neither Li Auto or Xpeng have managed to break into the top 10 largest Chinese EV makers by sales.

BYD’s rise to become the dominant force in China’s auto market - overtaking established western automakers like Volkswagen AG to sell 3 million units last year - comes amid a broad slowdown in EV demand globally.

Ford Motor Co., Porsche AG and Mercedes-Benz Group AG have all walked back their EV ambitions in recent months, while Tesla Inc. is well off the pace of 1.8 million cars sold last year.

In another sign of slowing demand for EVs, automotive researcher J.D. Power said Wednesday that battery-powered models will account for just 9% of sales in the US this year, down from its previous forecast of 12.4%.

BYD’s result is "impressive, as most of its EV peers in China and around the world have been incurring significant losses for some time and are faced with potential liquidity issues,” Barclays analysts Jiong Shao and Lian Xiu Duan wrote in a note.

The profits will also arm BYD with the power to accelerate EV industry consolidation, they added.

Consultancy AlixPartners said in July that fewer than 20 Chinese electric car brands will be profitable by the end of the decade, as market leaders like BYD and Tesla further entrench their positions.

"You can easily tell from the sales data that top carmakers are accounting for a bigger share now, while low ranked performers may be phased out as soon as in two years,” said Yale Zhang, managing director at Shanghai-based consultancy AutoForesight. "The consolidation is pushed by the market, and the price war is one of the most effective and cruel methods.”

BYD has established its dominance in recent years by pioneering battery and hybrid technologies that it’s deployed across a wide lineup.

Offerings include the affordable Seagull hatchback, now one of China’s best-selling EVs, which starts from 69,800 yuan ($9,800), to the luxury Yangwang supercar series, which sell for more than 1 million yuan.

The carmaker’s growth has also been supported by the popularity of plug-in hybrids, whose sales are increasing at a faster pace than battery EVs.

While Tesla may have been the first major EV maker in the China market to slash prices nearly two years ago, BYD has intensified the price war. It cut the prices of its Qin Plus sedan series by about 20,000 yuan in February, forcing other EV manufacturers and legacy automakers to follow suit.

"BYD isn’t immune to the price pressure, but its scale and vertical integration provide crucial support to profitability, and allow it to cut prices more if necessary to squeeze out smaller rivals and accelerate industry consolidation,” said Joanna Chen, Bloomberg Intelligence’s China auto analyst.

China’s best-selling car brand also has ambitions for the global market. In an interview with Bloomberg News on Monday, Executive Vice President Stella Li said she expects international sales to grow to nearly half of BYD’s total in the future.

Overseas deliveries of passenger vehicles made up about 12% of total as of July. The company is chartering its own fleet of ships to help achieve that goal, with the BYD 01 embarking on export voyages this year.