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China’s biggest electric vehicle maker BYD has posted higher quarterly revenues than US rival Tesla for the first time, but a bruising price war in its domestic market dragged on its profitability.
BYD revenues for the third quarter reached Rmb201bn ($28.2bn), surpassing the $25.2bn sales that Tesla reported last week. The Warren Buffett-backed carmaker sold a record 1.1mn cars in the three-month period, boosted by a new round of Chinese government subsidies for EVs.
However, the 24 per cent increase in sales reported on Wednesday came at the expense of BYD’s gross margins, which slipped from 22.1 per cent last year to 21.9 per cent. Net income was Rmb11.6bn, rising 11.5 per cent from a year earlier.
Instead of directly offering discounts, BYD has in recent months launched longer range models equipped with more advanced features at lower prices than their old versions. The strategy has helped it cement its market leadership amid fierce price competition, but pulled down the group’s net profit per vehicle, analysts said.
A continued price war in the world’s largest car market is eating into the margins of both homegrown brands and foreign carmakers. Volkswagen has warned that operating profit from its Chinese joint ventures could hit the low end of its forecast for 2024, coming at €1.6bn instead of as much as €2bn.
Due to a high level of vertical integration, including controlling production of batteries and computer chips, BYD’s gross margin of 21.9 per cent is still far ahead of Tesla’s 17 per cent and Chinese rivals Zeekr’s on 14.2 per cent and Xpeng’s on 6.4 per cent.
Analysts said overseas expansion would be key to BYD’s future growth, against a backdrop of rising western protectionism.
“Though BYD is currently building up its presence in the overseas market at a fast pace, its global expansion faces multiple uncertain factors, including complexity of local operation, policy changes and geopolitical risks,” Goldman Sachs analysts wrote in a research note this month.
The EU decided on Tuesday to charge extra 17 per cent tariffs on imports of BYD’s battery-powered vehicles, on top of the existing 10 per cent duty. Even though BYD recently opened a factory in Thailand — its first plant outside China — overseas sales accounted for just 7.9 per cent of overall monthly sales in September, down from 9.8 per cent a year earlier.
“BYD’s export visibility may not improve over the short term,” Citi analysts wrote in a report.
The company’s Hong Kong-listed shares closed down 0.7 per cent ahead of the results.
