BYD’s average price cuts reached about 10 percent across its range in March. China’s auto industry is still grappling with serious overcapacity issues. Officials have warned carmakers against triggering a damaging price war. The Chinese auto industry has spent the better part of two years waiting for the price war to burn itself out. It hasn’t, and car companies are showing no signs of relenting. Facing declining sales, BYD is instituting significant price cuts, as are key rivals Geely and Chery. Almost a year has passed since Chinese authorities sat down with the heads of more than a dozen carmakers and pressed them to call off the price war before it became a race to the bottom. The country’s market regulator called for efforts to “comprehensively rectify ‘involutionary’ competition,” borrowing a phrase Premier Li Qiang has used for the industry’s increasingly self-defeating behaviour. Read: Dozens Of Chinese EV Brands Could Collapse In The Next Year It appears little has changed. Data from Bloomberg reveals the average price reduction across BYD models increased to 10 percent in March. Meanwhile, Geely and Chery are running discounts of around 15 percent, though those have held roughly steady through the past twelve months. China Doesn’t Have Enough Car Buyers Overcapacity within China’s automotive sector is at the root of the problem. Last year, approximately 23 million new vehicles were sold in the country, but its car factories have the capacity to produce 55.5 million vehicles a year. This has prompted many local brands to ramp up vehicle exports. Last month, EV exports from China more than doubled. Now facing greater scrutiny from regulators, companies, including BYD, are being forced to pay suppliers much more quickly than in the past. Prior to local authorities getting involved, automakers had been delaying invoice fulfillment for months at a time, allowing them to offer deep discounts to spark sales. Now, invoices must be paid more promptly, increasing liabilities on carmakers’ balance sheets. For BYD, this has pushed its debt-to-equity ratio to 25 percent. “It seems to be good for the customers, but it’s not — manufacturers are losing money,” the secretary general of the International Organization of Motor Vehicle Manufacturers, François Roudier, said. “It hurts the full system.”
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