Why Has BYD Suddenly Launched Another Price War?

On May 22, BYD implemented price reductions across 22 models under its Dynasty and Ocean series, with discounts ranging from RMB 12,000 to RMB 53,000. The company announced that this subsidy-driven price cut campaign will continue until the end of June. This marks BYD’s third round of price cuts since late March and is the most significant in scale and depth so far. As the leading automaker in China’s new energy vehicle (NEV) market, BYD’s widespread and substantial price adjustments signal the onset of a new pricing battle in the auto industry.

Starting May 26, Geely followed suit by reducing prices on multiple models in its Galaxy and Xingyuan lines, including the recently launched Xingyao series. Chery intensified price cuts further, spanning four brands—Tiggo, Arrizo, Jetour, and iCAR—with Tiggo series seeing discounts approaching half of the original price.

This aggressive price competition emerges against a backdrop of historically low profit margins in the automotive sector throughout 2024. Amid governmental efforts to curb destructive internal competition, BYD’s initiation of another price war appears to be a reluctant strategy to maintain market position.

According to the China Automobile Dealers Association, the automotive industry’s profit margin fell to 4.3% in 2024, lower than the overall industrial sector and below 2023 levels. The price war caused the new car retail market to suffer an estimated cumulative loss of nearly RMB 200 billion in 2024.

New energy vehicles have experienced steeper price declines compared to traditional fuel-powered cars. The Association’s data shows that NEV new models dropped on average by RMB 18,000 in price, a 9.2% reduction, compared to RMB 13,000 and 6.8% for conventional vehicles.

The auto industry is approaching a near break-even situation, especially pronounced within the NEV segment.

BYD sold approximately 4.27 million new vehicles in 2024, generating RMB 617.38 billion in automotive-related revenue, averaging RMB 144,500 per vehicle sold. Although BYD has not publicly disclosed net profits for its automotive business, assuming a 22.31% gross margin on automotive-related revenue, the gross profit per vehicle approximates RMB 32,200.

BYD’s gross margin and profitability remain industry-leading, surpassing competitors such as Tesla, Li Auto, Geely, and Chery. However, net profits from the automotive segment appear significantly lower. Even if the entire 2024 net profit of RMB 40.25 billion were allocated to automotive operations, net profit per vehicle would be under RMB 10,000.

Entering 2025, BYD’s “low-margin, high-volume” sales strategy faces challenges. The company targets 5.5 million vehicle sales this year, including approximately 4.7 million units domestically and over 800,000 overseas—the latter representing the key growth area.

Data for the first four months of 2025 shows BYD sold about 1.38 million vehicles, roughly 25% of the annual target. Since March, the launch of intelligent driving versions and price reductions on non-intelligent variants have not spurred rapid sales growth. In April, excluding overseas sales, BYD’s domestic NEV passenger vehicle sales declined slightly by 1% month-over-month, compared to a 0.89% overall market decrease, marking BYD’s first monthly domestic sales decline in 2025.

BYD faces dual pressures: increasing sales volume and improving average selling prices and margins.

BYD’s five main automotive brands include Ocean, Dynasty, Fangcheng Leopard, Denza, and Yangwang. Ocean and Dynasty underpin BYD’s volume, while Fangcheng Leopard, Denza, and Yangwang target the premium market.

In the mass market, BYD’s A0 segment models such as the Seagull and Dolphin averaged nearly 70,000 monthly sales previously, but sales fell below 40,000 units in the first four months of 2025. Meanwhile, Geely’s Xingyuan series, launched in September last year, reached over 35,000 monthly sales in March and April 2025, nearly matching the combined sales of BYD’s Seagull and Dolphin.

The Qin series (Qin EV, Qin PLUS NEV, and Qin L), another key pillar, also underperformed this year. According to data from Bitauto, average monthly retail sales of the Qin series exceeded 75,000 units in the second half of 2024, peaking at nearly 80,000 units in October. However, in the first four months of 2025, monthly sales averaged only 44,600 units.

Sales trajectories for the Yuan and Song series follow similar declining patterns. Although BYD still leads in scale in the mid-to-low end market, competitors increasingly differentiate themselves through intelligent features, eroding BYD’s market share.

Recently launched models from GAC Toyota (Bozhi 3X), Leapmotor (B10), and Dongfeng Nissan (N7) have lowered prices for lidar-equipped vehicles to around RMB 100,000, significantly influencing consumer perceptions and drawing some demand away from BYD. For example, BYD’s Han EV sold just over half the units of Nissan’s N7 in a recent week.

The Han EV’s weakening performance epitomizes challenges in the RMB 200,000 price segment. Official data shows BYD Han (including Han EV and the newly delivered Han L) sold 43,158 units in Q1 2025—a drop of over 50% from 94,675 units in Q4 2024.

Retail data from Bitauto indicates average monthly Han sales fell from 19,100 units in 2024 to 13,800 units in early 2025. The Han series faces competition from models such as Xiaomi’s SU7, XPeng P7+, and Dongfeng Nissan N7.

In the premium sector, BYD’s Denza brand, launched with the D9 in August 2022, has expanded to include N7, N8, Z9 (and Z9GT), and N9 models. Despite five models available, Denza’s sales have not grown. In 2023, Denza sold 127,800 units, 93.2% from the D9. Sales slightly dipped to 126,000 units last year, with over 90% still contributed by the D9.

Bitauto reports Denza Z9GT’s monthly sales declined sharply from 3,400 units in Q4 2023 to about 800 units in early 2025, and the Z9 averages just over 300 monthly units. The N7 has sold fewer than 400 units monthly for seven consecutive months.

Denza’s Q1 2025 sales totaled only 32,600 units, averaging under 10,900 units monthly. The brand has yet to find a breakthrough in premium market growth, as D9 sales also declined. Competing models like Lantu Dreamer, XPeng X9, and Zeekr 009 lead in the pure electric premium market.

High-priced, low-spec Denza N7 and N8 struggled badly. Fangcheng Leopard 5, with steady monthly retail sales just above 2,000 units, sharply cut prices by RMB 50,000 in late July 2024, dropping the entire lineup below RMB 300,000. This sparked dissatisfaction among early buyers and affected brand positioning—especially as the Leopard 5 had been on the market only eight months.

Fangcheng Leopard’s sales have fluctuated significantly. Following the launch and delivery of Leopard 8 at the end of last year and a year-end sales push, monthly retail sales briefly exceeded 11,000 units, but fell to around 6,400 units in Q1 2025. In April, deliveries of Leopard Titanium 3 boosted sales back above 10,000 units, with Leopard 5 remaining the primary contributor.

Denza and Fangcheng Leopard are BYD’s two main brands in the mid-to-high-end market, but neither brand shows sustained growth in sales or brand strength. Leopard 5’s large price cuts and Denza N7/N8’s poor performance cast shadows on BYD’s efforts to move upmarket. The Dynasty Han series previously demonstrated BYD’s success in the RMB 200,000 sedan market, but its sales decline signals challenges to BYD’s premium ambitions.

In contrast, competition is even fiercer at the entry-level segment, where BYD aims to stimulate sales with subsidies. Among the 22 models receiving price cuts, only four remain priced above RMB 150,000 after subsidies, and just one exceeds RMB 200,000.

BYD requires the premium market for brand elevation and improved automotive business margins, but stabilizing the mid- and low-end segments is critical. These segments form BYD’s core base, essential for meeting annual sales targets and alleviating debt risks.

The automotive manufacturing industry is capital-intensive with high leverage due to production and delivery cycles. For instance, Ford’s debt ratio reached 84% in 2024, Volkswagen’s debt ratio exceeds 70%. Among domestic automakers, Chery, NIO, and Seres carry over 87% debt ratios. BYD’s 74.64% debt ratio is relatively moderate compared to these peers and multinational giants.

Since 2022, BYD’s automotive segment has significantly driven revenue growth. Total revenue reached RMB 424.06 billion that year, with automotive-related income contributing 76.57%, up nearly 17 percentage points from 2021. That year, BYD also crossed the one million unit NEV sales mark for the first time.

In 2023, BYD surpassed 2 million NEV sales and then 3 million units, further increasing automotive business revenue share to over 80%.

However, 2024 saw the automotive segment’s revenue growth rate fall below the company’s overall growth for the first time in three years, with its revenue share declining to 79.5%.

BYD’s rapid automotive expansion has been matched by substantial R&D investments, ongoing fixed asset purchases, and growing operating liabilities.

R&D spending rose from RMB 18.65 billion in 2022 to RMB 39.92 billion in 2023 and RMB 54.2 billion in 2024, a compound annual growth rate of 70%.

Fixed asset investments escalated sharply starting in 2023, with RMB 131 billion spent, and RMB 80.6 billion in 2024. These investments funded capacity expansions, production lines, office buildings, and logistics equipment.

Despite increased investments, fixed asset book values rose modestly to RMB 230.9 billion in 2023 and RMB 262.2 billion in 2024, reflecting high depreciation charges of RMB 37.7 billion and RMB 56.9 billion, respectively.

This high-growth, high-turnover model pushed BYD’s liabilities upward. Interest-bearing debt, including bank loans, stood at RMB 28.58 billion in Q1 2025, down from RMB 36.55 billion in 2023, accounting for just 4.9% of total liabilities. Interest-bearing debt at Q1 2025 was similar to the level at the end of 2024.

Approximately 95% of BYD’s debt is non-interest-bearing operating liabilities, with accounts payable being the largest item at RMB 241.64 billion. BYD’s dominant market position grants it negotiating power with suppliers, effectively using accounts payable as short-term, interest-free financing. At the end of 2024, accounts payable turnover days were about 127.

GuruFocus data shows BYD’s accounts payable turnover days reached 166 in Q1 2025. Compared to 2024 year-end figures, BYD’s accounts payable turnover remains moderately low but higher than the industry median of 90.2 days.

Other non-interest liabilities include contract liabilities (advance payments), other payables (such as dealer rebates), and employee-related liabilities.

BYD has taken measures to reduce its debt ratio through financing and supply chain cost reductions. In November last year, BYD notified dealers of a 10% price cut target starting January 1, 2025, causing supplier dissatisfaction. In early March, BYD completed an H-share placement raising HKD 43.509 billion (approximately USD 5.6 billion), timed with peak stock prices.

Maintaining rapid sales growth is another crucial way to relieve debt pressure, creating a cycle of “high debt supporting high R&D and market share growth; market share growth sustaining the high debt structure.” For this reason, BYD cannot afford setbacks in sales growth.

As the domestic market stabilizes, BYD relies on entry-level models to secure its base, while overseas markets represent new growth potential. The overseas sales target for 2025 exceeds 800,000 units. In the first four months, BYD sold around 290,000 vehicles abroad, indicating a strong chance to surpass its goal.