Yesterday’s spectacular slump in BYD’s share price—down 8.6% in Hong Kong—appears to be an alarm bell. Admittedly, the company remains one of the undisputed champions of Chinese electric vehicles, although its commercial offensives are weighing on margins and leading to a price war that is worrying even the Chinese authorities.
At the weekend, BYD unveiled a new series of sales incentives on over 20 models. The Seagull, its entry-level electric city car, has seen its base price drop to 55,800 yuan—just $7,765. However, to benefit from this offer, customers must trade in their old vehicles. This is nothing new in the fierce price war that is eating away at the sector’s profitability, although the scale of the move is striking. Above all, it is worrying: how far is BYD willing to go to defend its market share?
Geely was quick to follow suit, unveiling aggressive discounts of its own on Monday. Other manufacturers, such as Nio and Leapmotor, saw their shares fall between 3% and 8.5% in the wake of this move. The market is showing signs of saturation, and the deflationary spiral seems to be out of control.
It was in this already tense context that Wei Jianjun, president of Great Wall Motor, dropped a bombshell by comparing the situation in the automotive sector to that of China Evergrande, the real estate developer whose collapse shook the entire Chinese economic ecosystem. “The Evergrande of the automotive industry already exists, but it hasn’t gone bankrupt yet,” he warned in an interview with Sina Finance. Without naming any brands, his message hit home: manufacturers are obsessed with their stockmarket valuations, even if it means neglecting the fundamentals of the industry.
The executive, known for his outspoken views, does not mince his words. He says that the industry is “unhealthy,” undermined by chronic losses and destructive practices. Suppliers are suffocating, caught between cost-cutting demands and late payments. And, in order to keep up, manufacturers are sacrificing reliability and safety.
“Some models have gone from 220,000 to 120,000 yuan in just a few years. What industrial product can lose 100,000 yuan in value without compromising its quality? It’s impossible,” he insists. Again, no names are mentioned, but its clear who he means.
Even the Chinese government seems to be getting scared. Last week, the national economic planner denounced loss-making sales practices in certain sectors and promised measures to curb this trend.
