It is pointed out that BYD, a Chinese electric vehicle manufacturer competing with Tesla for dominance in the global electric vehicle market, is facing a crisis due to massive debt. Recently, BYD significantly discounted prices on key models to reduce its debt, which has raised concerns that a cutthroat competition among companies could shake the entire Chinese electric vehicle market.
According to major foreign media outlets including Reuters, BYD recently announced it would apply double-digit discount rates to 22 models of electric vehicles and plug-in hybrid vehicles sold in China. The company’s main model, the mid-sized sedan Seal, will be discounted by up to 34%, while the price of the compact electric hatchback Seagull has been reduced by 20%.
As BYD drastically lowers its prices, other electric vehicle manufacturers have entered a state of emergency. This is due to the fact that BYD, as the number one company, has lowered prices amid the already saturated and struggling Chinese automobile market, making cutthroat competition inevitable.
Analysis suggests that BYD's price discounting is an emergency measure aimed at improving its deteriorating financial situation due to massive debt. With payments not made to suppliers amounting to tens of trillions of won, the company began to offload inventory at low prices.
In the finished vehicle industry, there are many opinions that the exact size of BYD's liabilities has not yet been determined. BYD reported its net liabilities as 27.7 billion yuan (approximately 5.31 trillion won) as of the second quarter of last year, but Bloomberg reported earlier this year, citing data from the Hong Kong accounting firm GMT Research, that BYD's net liabilities could have reached 323 billion yuan (approximately 62 trillion won). Bloomberg pointed out that BYD likely published a significantly reduced figure for its liabilities by applying its own accounting practices.
The surge in BYD's liabilities is due to the accumulation of payment obligations not fulfilled to suppliers. According to Bloomberg, BYD issues bills after procuring parts from suppliers; however, the maturity is much longer compared to competitors. While global automakers typically pay within an average of 2 months and Tesla within 3 months, it is reported that BYD pays after an average of 9 months or even up to a year.
As BYD's financial distress issues become apparent, there are growing concerns within the Chinese automotive industry that chaos similar to that experienced in the real estate market several years ago may re-emerge.
On the 23rd of last month, Wei Jinjun, chairman of Changan Automobile, said in an interview with Chinese media, "The crisis has not yet occurred, but the automotive industry already has a 'Hengda' looming." Hengda was the largest real estate developer in China, but it went bankrupt in 2021 after reckless expansion. The Chinese real estate market, which fell into a severe recession afterward, has still not recovered. Chairman Wei's remarks are interpreted as highlighting the reality of BYD, which has focused on growth while its financial structure has deteriorated.
BYD sold 1,764,992 electric vehicles last year. This figure makes it the second largest in the world, following Tesla, which sold 1,789,226 units. When including plug-in hybrids and hydrogen fuel cell vehicles, total sales reached 4,272,145 units. In March, it also revealed the development of a new rapid charging technology that allows for 400 km of driving in 5 minutes, surprising the global finished vehicle and battery markets.
However, profitability is lower than that of global competitors. While most of its revenue is generated within the Chinese market, it continues to invest heavily in research and development and global production facility expansion. BYD has expanded its market share in Southeast Asia and has entered the Korean and Japanese markets, but it faces high tariff barriers in the most profitable markets, the United States and Europe.
An official in the finished vehicle industry noted, "China is the world's largest electric vehicle market, but recent growth has slowed. If electric vehicle manufacturers that can no longer find growth momentum continue cutthroat competition, there will soon be companies going bankrupt due to enormous debt issues."
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