BYD’s world-beating EVs brace for a rougher ride

BYD’s world-beating EVs brace for a rougher ride

HONG KONG, Feb 15 (Reuters Breakingviews) – BYD’s (002594.SZ), (1211.HK) bullish boss Wang Chuanfu once

HONG KONG, Feb 15 (Reuters Breakingviews) – BYD’s (002594.SZ), (1211.HK) bullish boss Wang Chuanfu once quipped that the Chinese carmaker’s name stood for “Bring You Dollars”; but even Wang will struggle to keep up the pace as overcapacity and accelerating competition slam into the world’s largest auto market.

The Shenzhen-based electric-car star outsold Tesla (TSLA.O) in 2022, and executives have already flagged its upcoming earnings will probably show the bottom line zoomed ahead by more than 1,000% last year. The $108 billion group’s sheer size means it benefits from exceptional economies of scale in an immature industry. Last year, it tripled both production and sales of pure electric and hybrid cars to nearly 2 million vehicles. That is equivalent to roughly a quarter of EVs purchased in China in 2022.

However, competition is charging up at home. The auto industry as a whole will add enough China-manufacturing capacity to make an additional 6.5 million vehicles per year by 2025, research from Bernstein shows; most of that will be battery-powered. Although BYD itself accounts for just over half of the total, a glut would weigh. The country’s new production lines will outstrip demand growth between 2022 and 2025, the researchers forecast, implying almost 50% of China’s factory firepower will stand idle by 2025, compared with around 30% a decade earlier.

A recent slump in spending means overcapacity will bite sooner. Sales of electric cars fell 6.3% in January from a year earlier; overall deliveries sunk more than a third, the China Passenger Car Association said on Wednesday. Meanwhile, consumers are increasingly spoilt for choice as brands launch new models, slash prices and vie to differentiate themselves with technology such as assisted-driving software.

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Wang’s company has other advantages that will be hard to replicate. The group makes batteries too, accounting for almost a quarter of China’s total sales last year, Jefferies estimates. Its core technology is competitive and affordable. A UBS teardown showed the cost of a BYD “Blade” battery, which offers a range of more than 700km, was lower than a comparable product by the world’s biggest battery producer Contemporary Amperex Technology (300750.SZ). BYD produces semiconductors, too, helping navigate supply-chain snarls. And it is starting to win market share overseas.

BYD can use all of that to buffer its bottom line as China’s roads grow more crowded. But Wang is in for a bumpier ride.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


China’s sales of new energy cars, which include pure-battery electric vehicles and plug-in hybrids, fell 6.3% in January after 90% growth in 2022, the China Passenger Car Association said on Jan. 8. Overall passenger car sales, including electric vehicles and fossil-fueled models, slumped 38% in January, reversing a 2.4% gain in the previous month.

Electric-car maker BYD estimated its net profit for 2022 could be as high as 16.3 billion yuan ($2.4 billion), after deducting non-recurring items, according to a profit warning filed to the Hong Kong Stock Exchange on Jan. 30. That would represent an increase of as much as 1,199% from a year earlier.

The company added that if non-recurring items were factored in, estimated net profit would grow up to 458% from a year earlier, to as much as 17 billion yuan.

Editing by Antony Currie and Thomas Shum

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Katrina Hamlin

Thomson Reuters

Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including environmental policy, cleantech and green finance, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.