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BYD faces China price war fallout, while Chery goes public in HK
View(s):By Kapila Bandara
China’s Chery Automobile, which offers the mass market Chery vehicles in Sri Lanka and elsewhere and which is exiting Russia due to sanctions, is going public in Hong Kong, while Hong Kong-listed Chinese new energy vehicle producer BYD Company and its Sri Lankan distributor are continuing to wrestle in court with Sri Lanka Customs.
John Keells CG Auto had sought court redress after a consignment of BYD electric vehicles and plug-in hybrids was detained, and on August 7 the Court of Appeal ordered the release of 991 of 997 vehicles. Later, other BYDs were detained, and early this month the CA ordered the release of 506 cars.
The tussle over electric motor power, potential customs duties and a fair and level playing field has drawn the attention of other Sri Lankan new energy vehicle importers as well.
Sales of electrics and hybrids have shot up over the past few months, a breakdown by JB Securities citing Department of Motor Traffic data shows. In August, 5,668 electrics were registered, nearly three times the number in February when imports resumed following a suspension. Also, 1,907 hybrids were registered in August compared with 27 in March.
Like any tech company, BYD faces its share of challenges and risks, including blowback on aggressive discounts and bearish sentiment on its stock. BYD’s stock has underperformed in Hong Kong versus some peers, and monthly sales have fallen for the first time this year in July, especially in China, despite discounts of up to 30%.
BYD’s sales of battery electrics dropped sharply in July to 177,887 (lower by more than 40% from the year before July), and that of plug-in hybrids fell to 163,143 (down by 14.77%), unaudited filings in Hong Kong show. It was the first drop in monthly sales this year.
Financial news network Bloomberg reported in mid-September of a US$45 billion stock sell-off in the backdrop of a price war in China. In June, too, BYD endured a sell-off that pared more than US$20b off its market value in two weeks.
Over six months, the stock is down by 15.68% in Hong Kong trading.
But, year-to-date, the stock has gone from HK$86 to HK$112.80 as of September 18 in Hong Kong trading. It closed on Friday at HK$113.50, having opened at HK$112.20. Vanguard International Growth Inv Fund and Hang Seng China Enterprises ETF (4.28% interest) are among the institutional investors holding BYD Co in their portfolios, Morningstar data show.
BlackRock, Inc., has a 6.23% interest in the company’s H shares. And in Hong Kong, UBS has reiterated a buy call on BYD with a target price of HK$160.
In March, BYD raised US$5.59b in Hong Kong through a primary share placement at HK$335.20 per share at the time.
BYD began life as a mobile phone battery maker in 1995, which then purchased the struggling state-run car company, Xi’an Qin Chuan Automobile. Chinese media has reported how founder Wang Chuanfu named it “ba ya di”, which then evolved into BYD. Having evolved its technology over the years, BYD now promises battery charging tech that it claims powers an extra hundred miles in five minutes. It also developed an advanced driver-assistance system. In 2020 came the “blade battery” (long cells arranged like blades) using lithium iron phosphate. German design director Wolfgang Egger of Alfa Romeo, Audi and Lamborghini fame, has had a hand in BYD’s global success as well.
BYD has the biggest market cap in the sector in Hong Kong, which includes Li Auto, Geely Auto, Xpeng, Nio, and Yadea, among others.
June quarter net dropped by 29.9% to 6.36 billion yuan. Bloomberg reported that BYD shares tumbled by 8%, “wiping off more than US$6b’’ from its market value.
Steep discounts in the overall market have drawn scrutiny from authorities. The Chinese Communist Party mouthpiece, People’s Daily, has frowned on the domestic rat race.
A BYD executive has raised the prospect of a shakeout in the vehicle market.
Stella Li, BYD executive vice-president, told the Financial Times at the Munich motor show recently that “some of the original equipment makers will be pushed out” if they are unable to give discounts. “Even 20 OEMs is too much.”
Recently, Hozon, which produced Neta, went bankrupt.
BYD has been offering sharp discounts — for some models up to 30% — in the domestic market and subsidies for trade-ins. The price of the Seagull fell to 55,800 yuan (Rs 2.37 million), reports said in May. In the Chinese market the trade-in subsidy for an electric car is up to 15,000 yuan (more than Rs 637,000).
In interim filings in Hong Kong, BYD Co., which has received billions of US dollars worth of state subsidies, noted at the end of August “intense market game, (sic), increased price competition, and frequent occurrence of excessive marketing”. BYD called “excessive marketing’’ a “malpractice’’.
In July, China’s Ministry of Industry and Information Technology told NEV makers to contain the “irrational competition’’.
The China Automobile Dealers Association estimated in December the price war caused 177.6b yuan losses between January and November 2024.
The Chery brand is made up of Tiggo, Arrizo and Fulwin, as well as Omoda and Jaecoo, mainly for overseas markets.
Hayleys Mobility last month said it signed an exclusive distribution partnership to sell Omoda and Jaecoo, the compact SUVs of Chery Automobile built for overseas markets.
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