China’s electric vehicle giant BYD reported a sharp drop in second-quarter profits, missing analysts’ forecasts as Beijing’s crackdown on aggressive discounting and long-term supplier payment practices weighed on the company’s margins.
The Shenzhen-based automaker posted net income of Rmb6.4 billion ($897 million), down nearly 30% from a year earlier and well below analysts’ expectations of Rmb10.7 billion. Revenue rose 14% year-on-year to Rmb201 billion, falling short of the projected Rmb220 billion. Gross margins narrowed to 16.3% from 18.7% a year earlier.
The earnings hit comes after Chinese regulators warned a dozen domestic carmakers against steep discounting and mounting unpaid supplier bills. In response, BYD promised in June to cut supplier payment times to 60 days, down from its historically long terms, and adjust the use of promissory notes. The move has weighed on profitability, as the company exchanged faster payments for lower component costs.
The wider price war in China’s EV sector has also eased. According to Citi analysts, average discounts offered by 11 major carmakers, including BYD and Tesla, narrowed to 6.7% in early August from a peak of 8% in June. Beijing’s anti-neijuan campaign targets excessive price cuts that contribute to deflationary pressures and strain relations with major trading partners.
BYD shares had already fallen 25% from a record high in May, following optimism around its “God’s Eye” driver-assistance system and five-minute battery charging technology.
Outside China, BYD’s momentum is growing. Overseas sales of battery-powered and plug-in hybrid vehicles more than doubled to 550,000 units in the first seven months of the year. The company surpassed Tesla in European EV sales for the first time in May, benefiting from both Elon Musk’s political controversies and Tesla’s temporary pullback in the region.
The Warren Buffett-backed company plans to start production at new factories in Hungary and Turkey this year and has built six car-carrying “roll-on, roll-off” ships for exports. BYD management signaled plans to expand overseas production capacity to meet rising international demand, potentially mitigating domestic headwinds.
