(Bloomberg) — China’s biggest-selling auto brand withstood a raging price war that engulfed the country this year, with BYD Co. posting second-quarter profit that surged 145% and sending its shares climbing.
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Net income more than doubled to 6.8 billion yuan ($930 million) after the company sold a record number of plug-in hybrid and fully electric vehicles during the three months ended in June. While fierce competition in China led to the slowest revenue growth in more than a year, BYD still generated 140 billion yuan in quarterly sales, according to Bloomberg calculations based on its first-half earnings.
The company’s Hong Kong-listed shares climbed as much as 6.5%, the biggest intra-day gain since the start of March.
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BYD’s robust financial performance will help as it navigates another period of discounting in the world’s biggest auto market, where its preferred strategy is cutting prices on newly released models. Over the weekend, BYD unveiled a slightly cheaper range of 2023 Tang vehicles at the Chengdu Auto Show.
The Shenzhen-based company’s strong sales has helped it maintain its lead over Volkswagen AG as China’s best-selling car brand this year, after it leapfrogged the German auto giant in the first quarter.
BYD sold 700,000 clean cars during the second quarter, beating the previous high of 683,400 in the final three months of 2022. It notched 156.3 billion yuan in revenue during the earlier period and benefitted from a record gross margin of 19%. BYD’s margin in the second quarter was 18.7%. Total passenger EV sales hit 1.5 million so far in 2023, through July.
What Bloomberg Intelligence Says
Vehicle shipments appear on track to meet management’s target of 3 million units this year, and possibly surpass consensus expectations for 3.5 million next year, powered by strong domestic demand and rising exports. Better economies of scale and a deep vertical integration help offset pricing pressure, contributing to margin stability.
— Joanna Chen and Steve Man, BI auto analysts
BYD’s performance was exceptional considering the sector-wide price war, China’s weakening economy and EV subsidy changes, Citigroup’s Jeff Chung wrote in a post-earnings research note.
Known for selling affordable cars to the masses, the automaker has made progress in broadening its appeal. It unveiled two luxury EV brands, Yangwang and Fang Cheng Bao, that allowed it to penetrate the 1 million yuan price category, more than double some of its earlier higher-end vehicles. It also pushed two cheaper models, the Seagull and Dolphin, to undercut its peers.
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“Since BYD has offerings across almost all segments and price-points, BYD as a whole has been net-impervious to price cuts,” said Jack Shea, chief financial officer at Shenzhen-based hedge fund Snow Bull Capital Inc., which has invested in both BYD and Tesla.
While BYD has a seemingly unassailable lead in the market, weaker foreign rivals and smaller Chinese EV players are making moves to boost their capabilities, especially in the so-called smart EV, autonomous driving space.
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Xpeng Inc. snapped up Didi Global Inc.’s smart car business Monday in a $744 million deal. Xpeng’s appeal in the intelligent vehicle space also won it a $700 million investment in July from Volkswagen, which is seeking to turn around its fortunes in the rapidly changing China auto market.
–With assistance from Charlotte Yang.
(Adds chart, analyst reaction, more context from 5th paragraph)
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