China is the world's largest market for electric vehicles, with more than 5 million pure electric car registrations in 2023. But it is not immune to the slowdown in global sales...

Many Chinese electric vehicle manufacturers, who previously posted steady growth, are now reporting a decline in sales and revenues. This is one of the consequences of the price war between local manufacturers to compete for buyers.

BYD's accounts

The electric vehicle segment in China continues to grow, but at a slower rate than last year. The quarterly results report published by one of China's leading electric vehicle operators, BYD, made this clear.

2023 was a fantastic year, which saw its net profits rise by more than 80% on the previous year, and ended with it overtaking Tesla for the total number of electric vehicles sold in the final quarter of the year.

However, projections show that BYD will not do so well in 2024. The company reported a net profit in the first quarter that was 47% lower than in the fourth quarter of 2023. This is due to the sale of almost 34% fewer plug-in vehicles (EV and PHEV included) in the first quarter of this year compared to the last quarter of 2023.

Although sales in the first quarter of 2024 were down on the fourth quarter of 2023, they were up 13.4% on the first quarter of 2023.

BYD's slow start to the year was attributed to the Chinese New Year celebrations and other factors that saw fewer people buying electric vehicles. However, sales picked up in March, when nearly 140,000 electric vehicles were sold, and remained strong through April. Despite the slowdown and increasing local competition, BYD still posted a net profit of 10.6% in the first quarter, while its sales rose by 4%.

The price war

BYD was dethroned in the first quarter of 2024 by Tesla, which regained the title of the world's leading seller of electric vehicles. The American manufacturer is not alone in aggressively lowering its prices to attract buyers; BYD lowered the price of its plug-in models by between 5% and 20% in February to convince buyers not to opt for a 100% internal combustion vehicle and to reduce the offers from its competitors.

After BYD announced price cuts for many of its brands, kicked off by a 20% drop in the price of the Qin Plus DM-i plug-in hybrid, Tesla also slashed the prices of the Model 3 and Y by more than 5%, followed by a 5.7% cut by Li Auto, which sells high-end electrified vehicles. According to information from Goldman Sachs, quoted by the South China Morning Post, the price war could continue until the end of 2024, pushing the electric vehicle segment towards negative profitability.

It is explained that due to an average drop in electric vehicle prices of 21,000 yuan (around £2,300 at current exchange rates) across the sector as a whole (around 11% of their value on average), the overall profit for electric vehicles has fallen from 2,100 yuan (around £230) to a negative 1,600 yuan (around £177) in July 2023.