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If an industry shakeout is looming, it’s best to be near the front of the race. That’s the enviable position that Chinese electric vehicle giant BYD finds itself in. Its management expects only a handful of the country’s EV carmakers to survive in the medium to long-term — down from 129 today. But navigating the traffic has not left it entirely scrape free.
Until recently, China’s EV industry was powering ahead. Almost half of all sales this year in the world’s largest car market are expected to be either plug-in hybrids or battery EVs, according to EY. Outside China, BYD’s sales more than doubled in the first half of the year, and in Europe they passed those of Tesla for the first time, a sign that efforts to build brand awareness are working. Over the past five years, BYD has outperformed Tesla in share-price terms, too. Its Hong Kong-listed stock has risen almost fourfold, while its US rival has gained a comparatively miserly 150 per cent.
Since July, however, Beijing officials have called time on a bruising price war that BYD was arguably leading, given its size. Also, painfully for its near-term finances, Chinese authorities are forcing carmakers to pay their suppliers within 60 days, which in BYD’s case, meant more than halving its average payment times.
The upshot was second-quarter figures that missed forecasts for the first time in years, including a 1 percentage point hit to the EV maker’s gross profit margin. Several analysts have since cut as much as 30 per cent from 2027 sales estimates and almost as much off BYD’s expected bottom line as slowing purchase rates undercut the better profitability per car.
The result is a stock that is little changed in valuation terms, at 17 times 2026 earnings, from its price peak in May, according to LSEG data. Can it improve on that? Probably, if it continues to make inroads into other markets, where its profit per car is much higher than at home.
Also key for BYD’s valuation optimists is that the predicted industry shakeout is quick and effective, whether companies collapse, exit or merge. Stella Li, BYD’s executive vice-president, told the Financial Times this week that even 20 Chinese EV makers left would be too many. AlixPartners reckons just 15 will have produced positive earnings five years hence.
The risk is that local governments that support smaller carmaking enterprises far from Beijing maintain pet projects longer than is financially wise, straining the whole industry. That would be a pity. Whatever the final toll, a vibrant healthy market is the best chance of ensuring even those in good condition now continue to prosper.
jennifer.hughes@ft.com