The consequences of the fierce battle Among Chinese car manufacturers they are becoming impossible to ignore.
When Byd Co. last Friday reported a surprising 30% drop in its quarterly profits, its first fall in more than three years, It was clear that not even the dominant actors are safe in the fierce battle for market share.
Despite the solid sales abroad, the Net income of byd, of 6,360 million yuan (892 million dollars) during the quarter ending on June 30, did not reach the estimates of the analysts, which provided for a modest increaseeither. Due to important discounts, BYD’s gross margin contracted 18.8 % to 18 % in the first semester of 2024, although this figure is still among the best in the sector, surpassing rivals such as Zhejiang Geely Holding Group Co. and Chery Automobile Co.
The Shenzhen headquarters attributed the pressure on its results to the “bad practices of the industry” and “excessive marketing”, which is ironic if it is considered that ByD has been an important driver of the price war, leading multiple rounds of cuts since 2023, including the last in May. Your most recent discount campaign LHe raised the government to warn car manufacturers against “uncontrolled competition”, arguing that price wars can affect the security of the supply chain and seriously damage the international reputation of “fact in China.”
Byd’s stumbling block, since Its overall expansion has accelerated this year, with the brand venturing hard in markets such as Brazil, which represents approximately one third of its international sales, Australia, Singapore and parts of Europe. Income abroad, excluding Hong Kong, Macao and Taiwan, increased 50 % in the first semester compared to the same period of the previous year, reaching 135 400 million yuan.
When qualifying the reduction of margins as “competition scars”, a note published by the Stanford C. Bernstein research firm during the weekend observed that the pressure on the margins persisted despite the highest volume of sales abroad. “The increase in promotional initiatives did not achieve the planned volume growth,” they wrote analystS, including Eunice Lee, adding that the increase in capital investment further set the margins. Bernstein maintained its “higher market” rating, but reduced its target price of HK $ 133 (US $ 17) to HK $ 130. Byd’s actions closed in Hong Kong on Friday at HK $ 114.40, before the publication of the results.
In addition to the weakening of gross margins, the net benefit of the company attributable to shareholders increased at a slower pace, another sign that Profitability is under pressure, while loans increased to 39.1 billion yuan from 28.6 billion yuan at the end of last year.
Research and development expenses are also increasing rapidly, with an interannual increase of more than 50%, which shows that the company strongly bets on innovation despite the reduction of margins. Byd is likely to deliberately increasing the spending on key technologies (batteries, electrification and intelligence) as part of its long -term strategy to consolidate its leadership in vehicles of new energies. It should be argued that greater margins can be obtained with premium models such as Yangwang or the Fangchengbao.
The company’s latest financial statements indicate that Byd is paying its suppliers more quickly than before. “The number of billing days of accounts payable and the group’s bills remained low in the automotive industry And it decreased even more during the report period compared to the same 2024 period, “says the August 29 report, without revealing the exact number of days.
In 2023, Byd took an average of 275 days to pay its suppliers, a period that widely exceeded the global standards of the industryas shown by Bloomberg data.
The company said in June that it would comply with the new government regulations to pay suppliers within 60 days, A great adjustment that would probably affect its capital outputs work, reducing any flexibility in a recession.
This could also cause adjustments in other parts of his balance in the future: a report by the accounting consultant GMT Research said that without financing of the supply chain, the real net debt of ByD would be more Around 323 billion yuan, compared to the 27.7 billion yuan At the end of June 2024.
However, automotive power does not yet face any serious financial pressure and a slower growth rate It can be more sustainable as the company goes from being an emerging company that revolutionizes the industry to a global giant.
Byd seems to be directing more and more attention outside China, noting that the greatest profitability in that country has turned its international business into a key engine for its continuous growth. «The group has proactively promoting the planning and construction of additional production capacity abroad to prepare fully for a sudden increase in international demand, ”according to its provisional report.
Byd is “well aimed at reaching a million units sold abroad, exceeding the 800,000 planned,” said Lee de Bernstein, adding that annual sales are expected, including national and international shipments, toThe 5.1 million vehicles by 2025 are. “Byd is our main high performance option in the sector.”
