BYD Targets Toyota & Volkswagen With New Price Cut Strategy – CleanTechnica

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EV revolution slowing down? Pish tosh. That’s only because electric cars are still too expensive. BYD thinks it has the answer — electric cars that are so cheap that only a fool would refuse to buy one. According to Bloomberg Hyperdrive, the giant Chinese automaker is not content with unseating Tesla as the world’s top-selling electric car manufacturer. Instead it has set its sights on luring customers away from Toyota and Volkswagen — the number one and number two top automakers in the world by volume.

In one of the most aggressive rounds of discounting seen yet in China’s bruising price war, BYD is currently discounting almost every electric and hybrid model it sells as part of a marketing campaign based on the theme that “electricity is cheaper than oil.” Data from Chinese car portal 16888.com shows BYD has cut prices on more than 100 existing models and trim packages since December, according to an analysis by Bloomberg. In addition, BYD has relaunched 70 model and trim packages with lower prices. About the only unaffected vehicles come from its new Yangwang premium brand.

The BYD Seagull hatchback has been discounted 5% to 69,800 yuan, or less than $10,000, and the company has marked down its top selling Qin Plus sedan by 20% to a starting price of 79,800 yuan. While Chinese EV manufacturers generally aim their models at first-time car buyers in wealthy cities like Shanghai and Shenzhen, BYD’s all-out price cuts are intended to persuade drivers everywhere in the country to abandon their gasoline cars and go electric. The strategy also targets customers in smaller cities and rural areas who previously couldn’t afford an EV.

BYD Targeting Legacy Automakers

The strategy is a threat to Toyota, Volkswagen, and Nissan, all of whom have been slow to transition to electric cars and seen their China sales suffer as a result. “This is round two of the price war,” Bill Russo, founder and chief executive officer of Shanghai-based consultancy Automobility told Bloomberg. “BYD is using its margin advantage to attack the market. If I’ve got more chips in my stack on the poker table, then I’m going to try and bully that person off the table.”

The size of the latest price cuts has shocked even long-time observers accustomed to China’s hyper-competitive auto market. China Passenger Car Association secretary general Cui Dongshu wrote last week in a blog post that discounting has become “ultra intense” and reached “an astonishing level. New energy vehicles are severely cutting prices,” Cui said, before adding that some vehicle manufacturers who rely on sales of internal combustion models have cut prices as much as possible and have no more room left to go lower.

BYD Has Two Models In The Top Five

New energy vehicles, which include fully electric and plug-in hybrid models, accounted for 35.8% of new car sales in February, according to Bloomberg Intelligence.The large discounts are having the desired effect. The Qin Plus and Seagull are both in the top five selling sedans or hatchbacks in the first two months of this year, according to data from the China Passenger Car Association. A year ago, Nissan’s gasoline powered Sylphy was the top seller, followed by VW’s Lavida. The Sylphy and Toyota’s Corolla were among the cars named by Morgan Stanley analysts in a February 19 report as being under the greatest threat from BYD’s discounts.

“With more companies trimming EV prices, those with higher margins could cushion more aggressive price cuts,” BloombergNEF wrote in a March 21 report. “But an extended price war will squeeze revenues as most firms are yet to turn a profit on producing EVs.” The latest escalation of the price war could also hasten a shakeout of China’s EV sector, as weaker manufacturers are forced to merge or go out of business. China has “too many brands, too many models on the market,” Yuqian Ding, HSBC Qianhai’s head of China auto research, told Bloomberg Television last week. “The industry is due for consolidation.”

Tesla Started It

Tesla kicked off the price war last year when it dramatically lowered the price of its Model 3 and Model Y produced in Shanghai. “The price cuts on EVs make them even more attractive compared to gasoline cars, further squeezing traditional carmakers,” Yang Jing, director of China Corporate Research at Fitch Ratings Ltd., said in an interview. Separately, she said companies without sound external funding may face “survival challenges” in the coming two years.

Companies with strong balance sheets or backers with deep pockets may be able to absorb losses temporarily as they seek to drive weaker competitors out of business. At one point last year, a Tesla Model Y was priced as much as 14% lower than the previous year. In some cases the Model Y in China cost almost 50% less than in the US and Europe. “Tesla created havoc for rest of the market,” Jochen Siebert, managing director of JSC Automotive, a consultancy with offices in Shanghai and Stuttgart told Bloomberg. He added that Tesla has “several billion dollars that they can use for this purpose while others don’t.”

BYD Intends To Finish It

Now BYD is joining in the feeding frenzy in its quest to gain market share, especially in comparison to conventional models from Toyota, Volkswagen, and Nissan. One factor that is seldom discussed is that customers in China prefer to buy from Chinese companies. It is a dangerous world out there and they see their way of life under threat from external forces. Gone are the days when foreign brands were automatically assumed to be superior. In fact, today they are often seen as inferior to Chinese brands.

Another factor is that plug-in hybrids are more widely accepted in China than in Europe or the US. Tesla, for all its prominence in the marketplace, does not sell plug-in hybrids and so has no answer for customers who want the confidence of knowing they have a gasoline engine that will take over in case the battery runs out of charge. Many plug-in cars in China often have significant range, so the gasoline engine does not get used that often. Many PHEVs in the US and Europe make do with small batteries that only provide 20 to 25 miles of range, which requires the gasoline engine to run much more frequently.

China recently ended its incentive program for new energy cars — which includes plug-in hybrids — and has suffered greatly because of supply chain issues associated with the Covid pandemic. Yet it remains the biggest market for electric and plug-in hybrid cars. According to BloombergNEF, EV sales in China could reach 8.1 million units this year, compared with 3.2 million in Europe and an estimated 1.9 million in the US.

Tesla may have started the price war, but BYD intends to be the last company standing, should it come to that. It seems possible Tesla may have understated the ability of BYD to counter Tesla’s price cuts with price cuts of its own. The old adage is still true — be careful what you wish for, you just might get it.


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