What to make of BYD's huge discounts
As I’m sure you have all seen, BYD has unveiled a whole rash of announcements since Chinese New Year that have unveiled upgraded 2024 models while also drastically lowering their prices. In the case of Han, they wholesale upgrade its smart car functionality and still cut 20-60k across the board. As charts show below, the level of cuts are quite impressive. First for Han and Tang models vs last year
Now for Song plus and Seal DM-i models (17k for Seal and 20k for song)
This was followed by 20k across the board for Song Pro DM-i and about 20k across the board for Qin+/Destroyer 05 family. In affect, BYD has officially reset the market. As the dominant player in China’s EV market in sub 200k segment, market expectations for NEVs are based on BYD pricing. As BYD resets the pricing, others either have to follow suit or loose out.
It started these cuts with a catchy campaign called “electric is cheaper than gas”. BYD is right. It has made NEVs cheaper than ICE vehicles. As people that have followed me know, BYD is the most vertically integrated company in the world. That allows it to keep cost lower than all of its competitors. It can achieve 10-15% margin even at prices that competition would loose money. BYD is essentially saying this. Last year, we lowered NEVs to price parity with ICE. We made a lot of money, but ICE kept their sales from aggressive price cuts. We are tired of that, we are going to end that this year.
Although BEVs have taken over the mini car segment, the story is different in compact and B size sedan market. Compact sedan is China’s largest auto segment. 3.4 out of 4.4 million were ICE last year. In January, Qin+ DM-i was 7th in sales. Every other model in top 10 were ICE. B segment sedan was even more dominated by ICE. Not a single NEV model in there.
Let’s talk about why now against ICE. The first major reason is the lower cost of batteries and chips. Battery prices have now dropped 40% in past 9 months. That was the largest cost for BEVs. Even for PHEVs, that was a pretty large cost item. Now, it is pretty small. BYD controls the full battery supply chain down to operating Li mines & refining them. As such, it can benefit from raw material price drops sooner than anyone else.
Since hitting peak chip shortage in 2022, supply has flooded the market. In fact, BYD itself has started 3 new fabs in the past 18 months at Changsha, Jinan and Shaoxing. All of which has probably led to 15-20% drop in its chip procurement prices. Beyond that, BYD is close to finish building up Fudi parts factories around the country. As such, it is able to source almost everything in house. It has used that and its market leading position to squeeze other suppliers into offering cut throat prices. The scary part is that once BYD capex investment are fully depreciated, it will be able to lower prices even further! Imagine that.
A and B segment sedans have been dominated by legacy ICE JVs, because their plants are fully depreciated and paid for. They have been able to really cut prices to keep sals going. Imagine buying a Honda Accord for under $20k. That’s possible in China! So I think my point is that BYD can finally lower PHEV price to a point that ICE simply can’t undercut anymore.
Just as importantly, it will finally have a full lineup of sedans and SUVs from minicar segment all the way B class sedan. The upcoming Yuan Up SUV, Qin L and Seal 06 DM-i will complete coverage of their A0 to B segment. That means, legacy auto can no longer lower one segment and make up the different in a different segment. when BYD cuts prices across the board, competitors will also have to do so. There is no where to hide.
Another reason to do this move now is because of domestic NEV competition. In 2023, Geely launched a new brand called Galaxy aimed at Dynasty series. It has since launched L7, L6 and E8 with many more planned this year. ChangAn launched the Deepal brand, which has created some impressive products like S7. Both S7 and L7 are direct competitors of BYD’s hottest selling model - Song family. Chery has also promised to launch many BEV and PHEV models by 2025.
By end of last year, Geely made the decision to go extremely low with its pricing to win market share. It launched higher spec’d Zeekr-007 Sedan as well as still impressive Galaxy E8. E8 seemed really geared toward BYD Han. As I commented at the time, E8 was a really impressive car very good pricing. It was better on paper than Han, but at lower price.
2024 Han pricing seemed geared at erasing that edge. Entry level price for Han EV is about the same as entry level for E8 (175 vs 179k). The 600 to 665km version for both are priced at 198.8k (hard to know real range for both without looking at WLTP ranges). The only major difference is that Han’s performance version with ADAS is 21k more expensive. We will see if the BYD brand can make up that 21k difference. Beyond that, BYD would severely undercut E8 with its Han DM-i and Seal DM-i. Keep in mind that part of E8’s low pricing was probably due to the rapid battery price drop in recent months. 80kWh battery probably costs 30-40k cheaper now vs a year ago. But having already launched E8 at such low price, there is just not much room for Geely to cut further. BYD also doesn’t want to give any competitor the chance to undercut its product.
Even if BYD doesn’t have same reputation as Huawei in the 250k+ segment due to smart car/ADAS functionalities, it has quite the strong hold on sub 200k segment. As EV penetration continues to increase, BYD does not want any other mass market brands to take those market share. It wants to take all that share from ICE by itself!
In the past year alone, it has started factory at Shenzhen Shenshan with 1 million+ capacity + factory at Hefei with 1.3 million capacity + Zhengzhou with 1 million capacity + further expansion at Xian to 1.5 million capacity + Jinan, phase 3 Changsha and a lot more. It probably has enough capacity soon to build 6 million cars per year. All that capex has high operational costs and depreciation costs. BYD can only achieve lower costs through high volume production. So, it needs to sell as many EVs as possible to further lower cost and improve its margins. As such, resetting market expectations for EV pricing is the right move. The casual followers will not see that Deepal and Geely Galaxy have also cut prices. They will hear that BYD PHEVs are now cheaper than ICE, because BYD is trying to kill these bad foreign ICE cars. You need to go to BYD to buy these EVs while they are so cheap.
BYD will have a fully lineup of sedan/SUVs in sub-200k segment in a couple of months. Then, it will move into large sedans and SUVs with Han L and Tang L. Those will likely have Lidar and L2+ ADAS. BYD knows that it started later on ADAS. As such, it needs time before ready to really challenge Huawei in that segment. Until then, it’s goal is to dominate the cheaper segment, build up its export infrastructure, domestic sales network and have a product for every segment. These price cuts give it the ammunition to further dominate mass market sales.