BYD, Once Again, Unleashes Its 'Dragon-Slaying Sword' of Price Cuts

However, this time, the sword is not aimed at its main brands, Dynasty and Ocean, but rather at its relatively new premium brand, FANGCHENGBAO.

On July 29, BYD officially announced a price reduction of RMB 50,000 across all models of its premium brand FANGCHENGBAO's 'Bao 5,' with a maximum price cut of 17.25%. Prior to this, the price range for the 'Bao 5' was RMB 289,800 to 352,800, while the latest price range is now RMB 239,800 to 302,800, meaning that after this round of price cuts, the price range for the 'Bao 5' models has essentially fallen below RMB 300,000.

In fact, consumers are no stranger to BYD's price cuts, as the company has implemented multiple price reductions over the past two years.

Taking the best-selling Qin PLUS DMI as an example, data shows that when it was first launched in 2021, the subsidized price range was RMB 111,800 to 151,800. By 2024, the Qin PLUS DMI had been upgraded to the 'Yaorong Edition,' with a subsidized price range of RMB 79,800 to 125,800, representing a price reduction of RMB 32,000 for the entry-level model in just a few years.

Unlike previous price cuts, however, this round of price reductions for the 'Bao 5' has sparked dissatisfaction among a large number of existing car owners.

Price War

The competition in the new energy vehicle market has been intense in recent years, and BYD's strength is evident to all.

For instance, the Qin PLUS DMI, mentioned at the beginning of this article, has had a significant impact on various automakers through its continuous price reductions, particularly on joint venture brands.

Brands like Toyota Corolla, which once required price markups, have also had to start discounting their vehicles in response to the pressure from the Qin PLUS DMI's continued price reductions. According to media reports, Toyota Corolla is now offering discounts of over RMB 40,000, with the starting price reduced to RMB 79,800. Similarly, Nissan Sylphy, which was once a sales champion, now offers its classic comfort version starting at just RMB 69,800.

Of course, BYD's decision to initiate a price war was not made lightly but after careful consideration, and it was not a case of 'hurting the enemy a thousand while injuring oneself eight hundred.'

On the one hand, the automobile industry inherently prioritizes scale, where larger sales volumes lead to lower costs per unit. Price reductions can drive up sales volumes.

Since the beginning of this year, driven by price reductions, BYD's sales have continued to rise. From January to July, BYD's cumulative passenger vehicle sales approached 1.948 million units, surpassing its full-year sales of 1.8634 million units in 2022. As sales continue to increase, BYD's scale advantages are becoming increasingly apparent. According to financial reports, BYD reported a net profit of RMB 4.569 billion in the first quarter, an increase of 10.62% year-on-year. Profitability has not been affected by the price war, and in fact, the more BYD reduces prices, the more it sells and the more it earns.

On the other hand, the continuous decline in raw material prices in the upstream supply chain of new energy vehicles in recent years has also provided room for BYD to reduce prices.

Taking power batteries, which account for a significant proportion of vehicle costs, as an example, the price of lithium carbonate has continued to decline over the past two years, falling from a high of approximately RMB 600,000 per ton to the current range of RMB 90,000 to 120,000 per ton. In the futures market, as of the close on August 2, the main contract for lithium carbonate futures, 2411, closed at RMB 81,000 per ton, with an intraday low of RMB 79,600 per ton, setting a new low since its listing.

Looking at profitability data, as of the fourth quarter of last year, BYD's revenue from its 'Automobiles, Automobile-related Products, and Other Products' business was RMB 483.5 billion, with a main operating profit of RMB 111.3 billion and a gross margin of 23.02%. In contrast, in 2022, the revenue from this business segment was RMB 324.7 billion, with a main operating profit of RMB 66.19 billion and a gross margin of 20.39%. Comparatively, despite continuous price reductions across its main models, BYD's gross margin in its automotive business has increased rather than decreased, which is precisely the result of scale and continuous raw material price reductions.

Whether considering raw material price trends or BYD's own scale, its decision to initiate a price war is 'reasonable.'

Is the Price War Coming to an End?

On July 29, BYD officially announced a price reduction of RMB 50,000 across all models of its premium brand FANGCHENGBAO's 'Bao 5,' with a maximum price cut of 17.25%.

Prior to this, the price range for the 'Bao 5' was RMB 289,800 to 352,800, and the latest price range is now RMB 239,800 to 302,800, meaning that after the price cuts, the price range for the 'Bao 5' models has essentially fallen below RMB 300,000.

For BYD, this price reduction is somewhat different from previous ones. In the past, BYD's price reductions were mainly focused on its Dynasty and Ocean brands, targeting mid-to-low-end models. However, FANGCHENGBAO is BYD's premium brand, equipped with new technologies such as a hybrid technology platform and CTC battery chassis integration, carrying BYD's ambition to pioneer new avenues and showcase its technical expertise and premiumization.

However, since its launch in August 2023, FANGCHENGBAO's sales have not met BYD's expectations. According to data, in the first half of 2024, the cumulative sales of the 'Bao 5' were approximately 18,000 units, accounting for only 1.1% of BYD's total sales, and sales in the last three months have been less than 3,000 units. It is perhaps due to these subpar sales figures that BYD chose to implement price reductions across the entire line.

However, price reductions are a double-edged sword.

In recent years, while pursuing sales volume, BYD has also actively promoted premiumization. Currently, BYD has several premium models under its umbrella, such as the YUWANG U9 with a guidance price of RMB 1.68 million, the YUWANG U8 priced at RMB 1.098 million, the DENZA D9 priced between RMB 339,800 and 660,000, and the DENZA N7 priced between RMB 301,800 and 379,800. However, data shows that sales of these premium models have generally not been particularly strong.

Taking the DENZA N7, the main sales model of the DENZA brand, as an example, statistics show that from August to December 2023, the monthly sales of the DENZA N7 peaked at 1,810 units and bottomed out at just 1,033 units, with a cumulative sales volume of 4,808 units over five months, averaging less than 1,000 units per month. In 2024, the DENZA N7 has even seen a sharp decline in sales, with only 320 and 294 units sold in January and February, respectively. Due to lower-than-expected sales, the price of the DENZA N7 has also been repeatedly adjusted downward. According to media reports, the new model of the DENZA N7 launched in April 2024 has been reduced by RMB 70,000, with the starting price now at RMB 239,800.

In fact, the experience of the DENZA N7 is precisely the 'backlash' caused by BYD's frequent price reductions. While it is true that premium models must be supported by technology, stable pricing is also crucial. After all, if prices are unstable and prices are reduced repeatedly after launch, it may lead to a situation where a brand that was once considered premium may no longer be seen as such. In the past month, premium brands such as Mercedes-Benz, BMW, and Audi have announced their withdrawal from the price war. Even though sales volumes may drop significantly, these premium brands have chosen to 'sacrifice volume to preserve prices' in order to stabilize their brand images.

Of course, there is nothing wrong with choosing to reduce prices for the sake of sales volume. However, since BYD's sales volume is already not low, it should continue to make breakthroughs in the premium market.