In a bid to prepare for the upcoming price war in the world’s largest auto market, BYD, Tesla’s biggest rival in China, has requested its suppliers to reduce prices by 10%.
Specifically, BYD has asked suppliers to submit quotations before December 15, with official price cuts to commence next year. This information spread on Wednesday morning through social media, originating from an email written by Executive Vice President He Zhiqi.
“In 2025, the electric vehicle market… will enter the final battle and knockout stage,” he stated. “To enhance the competitiveness of BYD vehicles…, I urge all teams to be serious and efficient in cost reduction.”
The request by the automaker, backed by Warren Buffett, has sparked outrage among the country’s auto parts manufacturers, who are already grappling with extremely low profit margins and extended payment cycles.
“The rise of China’s auto industry cannot come at the expense of the livelihood of domestic workers and suppliers,” responded one supplier. “We cannot accept your company’s request and do not wish to engage in this type of cooperation that violates business ethics and human nature.”
During the first nine months of 2024, BYD’s average time to pay its accounts payable, most of which are related to suppliers, was 144 days, up from 124 days in the previous year, according to the company’s records.
“It is a common industry practice to bargain prices with suppliers annually,” Li Yunfei, General Manager of Brand and Public Relations at BYD, stated in a social media post on Wednesday. “The price reduction target we proposed to suppliers is not mandatory but negotiable.”
The prolonged price war, initiated by Tesla in late 2022, has squeezed the profits of auto groups and triggered a wave of industry consolidation. Analysts predict that a new round of price cuts will occur earlier than usual in the first quarter of 2025.
Paul Gong, an auto analyst at UBS, commented, “Price competition in the Chinese auto market is inevitable in early 2025,” adding that major automakers cannot continue the futile measure of ramping up production as seen recently.
Earlier this week, Tesla announced a price reduction of 10,000 Chinese yuan (USD 1,379) for its best-selling Model Y SUV in China, marking a roughly 4% decrease to a starting price of 239,900 yuan.
An executive at a Chinese auto parts manufacturer, who requested anonymity, stated, “Although market demand for electric vehicles is huge, excess capacity will still cause unbearable pain for everyone in the industry.”
“Chinese-made electric vehicles may have the opportunity to replicate the success of Japanese brands and dominate the world, but this process will eliminate many competitors,” they added.
Financial Times
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