BYD Launches Another Price War in EV Market, Cementing Its Reputation as the "Price Slayer"

Last weekend, $BYD COMPANY(01211.HK) continued to increase promotions for its models, including significant price cuts for the intelligent driving versions, aligning with Dolphin Research's earlier expectations. Some models, including those with national subsidies, have seen prices drop to the 60,000 yuan range, with actual reductions of 5%-10%, reigniting a price war in the industry. This has also raised concerns about a new wave of price wars among new energy vehicle manufacturers. BYD's Hong Kong-listed shares fell by 7.7% by midday today, dragging down the entire new energy vehicle sector.

The reason behind BYD reigniting the industry price war was previously mentioned by Dolphin Research in its Q1 earnings review of BYD titled BYD: Still the King of Cars! But Can It Keep Running Wild?. Whether it's BYD's own inventory or the backlog in dealer channels, both are very high, making it highly likely that Q2 will see continued heavy discounts on inventory vehicles.

There are three core reasons for the inventory backlog:

① Rapid catch-up by competitors like Geely in plug-in hybrid technology: At the end of last year, Geely's Thor hybrid system began ramping up production quickly, leading BYD to overestimate its Q4 sales, resulting in a significant backlog of older DMI 5.0 models.

② Lower-than-expected demand for the new intelligent driving versions: The logic of "intelligent driving for all" is less certain than last year's DM5.0. BYD's core market remains in the 70,000-150,000 yuan price range, where cost-effectiveness and practicality are still the most critical factors. Last year's DM5.0 upgrade significantly reduced fuel consumption and extended range, enhancing fuel economy and practicality.

However, this year's "intelligent driving for all" logic is less certain because high-speed NOA is not a must-have scenario for most users in the 70,000-150,000 yuan range, whose driving is primarily urban. Additionally, the impact of Xiaomi's high-speed NOA accident has made it harder for users to justify paying extra for high-speed NOA features.

③ Improved competitiveness of direct competitors like Geely: Dolphin Research's tracking of Geely shows that its Galaxy models are designed to compete head-to-head with BYD's current lineup, almost like "close-quarters combat."

Technologically, whether it's Geely's Thor hybrid system catching up to BYD's DM5.0 or its "Qianli Haohan" intelligent driving system rivaling BYD's "Eyes of Heaven," Geely's progress in hybrid and intelligent driving technology has been rapid, and its competitiveness is increasing.

Including Geely's new models launched this year, some are priced significantly lower than BYD's comparable models (e.g., the Xing 8 vs. BYD Han). The core reason is Geely's cost reduction through technology shifts and integration.

a) Cost reduction through technology shifts: Geely switched from a three-gear DHT to a single-gear DHT (saving about 5,000 yuan) and reduced engine horsepower. While the original design prioritized all-scenario driving (especially high-speed performance), most users in the 70,000-150,000 yuan range prioritize urban driving and cost-effectiveness, prompting this shift.

b) Cost control through integration: Previously, Geely had too many sub-brands, leading to resource waste and internal inefficiencies. The recent integration aims to reduce sales costs and tighten control over expenses.

Ultimately, Geely is using these methods to compete with BYD in a price war, benefiting consumers. However, Dolphin Research believes BYD still holds an absolute advantage in price control due to its vertical integration and high-margin overseas sales offsetting domestic price cuts. Still, Geely's ability to compete in this year's price war is stronger than in previous years.

Overall, BYD faces significant domestic pressure this year. The "intelligent driving for all" logic is less certain than last year's DM5.0, and the key to outperforming expectations lies overseas. Fortunately, BYD's vertical integration strategy and high overseas growth provide a strong margin cushion, maintaining its ability to wage a price war.

Dolphin Research's investment view on BYD remains unchanged from its Q1 earnings review: while weekly sales are likely to rebound after price cuts, the upside is limited (5-10%, HK$445-460) if the market prices in 5.5 million vehicles and a net profit of 10,000 yuan per vehicle. A pullback is recommended before buying. Further upside depends on overseas sales exceeding expectations, offsetting domestic price cuts (current guidance: 800,000 vehicles; monitor overseas progress).