Good question, Pete. I do not think that will happen to a major extent, especially not in Europe as the EU and China have agreed on minimum pricing to avoid tariffs.
What the Chinese car makers are doing to compete is loading the default car configuration with many features that e.g. local auto makers charge extra for. Sticker price stays above minimum price but the consumer gets a great deal.
A key metric that I track is the growing share of foreign sales of the Chinese automakers I own as research indicates that they earn a higher gross margin vs. in the domestic market.
I’m sure they do earn a higher margin, but that may only be because the full force of the competition hasn’t arrived yet. That might change as export volumes rise. And minimum pricing - I wonder how long that lasts. Interesting to consider.
Fair challenge. There is early evidence for your side, worth putting on the table: BYD has discounted hard enough in Thailand to draw a government probe and anger buyers since 2024.
My point is that, right now, the gross margin for the companies I own is still higher than their domestic margins, which is why I keep an eye on it. A big discount off a high sticker price doesn't mean the premium is gone; usually, the sticker stays high and the buyer gets the deal. So the price war is spreading, but it's still unclear if a margin war will follow.
We agree on one thing: when several Chinese brands compete in the same market, that’s where margins are likely to fall first. I’m still not sure how soon Thailand will become the rule instead of the exception. That’s why I keep a close eye on margins every quarter.
I reckon BYD & Geely will be the long term winners from China for the automotive sector.
Locally, BYD will need to endure a long consolidation given the number of auto players (many state-backed) in China. Even with its cost/scale/vertical advantage, margins will continued to be pressured because of consolidation leading to continued involution (even though the government has asked for a stop on the issue). Along the path of consolidation, BYD will also need to navigate autonomous mobility which may also be sector disruptive requiring new competence/thinking.
I think Geopolitics (anti-chhinese sentiment) is BYD's biggest challenge currently with overseas expansion. Thereafter, building out an aftersales ecosystem so that as you say, it becomes a localised operator/brand. I notice many current BYD owners in europe moan about the challenges with repairs (no parts/long lead times/no secondary choice). I also remember it took years for toyota/honda to overcome the "Jap crap" stigma. Just as the 1970s oil crisis was a blessing to Toyota, maybe a new oil crisis maybe a blessing to BYD.
Based on what I've observed in mainland China, I think BYD is likely to face meaningful headwinds over the next 18 months. China's auto market has entered a phase of replacement demand rather than rapid expansion, making competition much more intense. In response, BYD has reportedly begun pushing some of its sub-brands toward greater operational independence, requiring them to manage their own profits and losses instead of relying heavily on BYD headquarters for R&D resources whenever sales come under pressure.
BYD is also at a relative disadvantage in advanced driver assistance systems (ADAS). For a long time, it sourced much of its ADAS technology from Momenta, and it has generally been more conservative than some competitors when it comes to rolling out consumer-facing features. With Chinese regulators tightening oversight of assisted-driving technologies, the entire industry is becoming more cautious, which means BYD may find it difficult to differentiate itself through ADAS alone.
Internationally, BYD's expansion has been about six to twelve months behind what I had expected. Whether it's political resistance affecting its factory project in Hungary or labor issues in Brazil, these setbacks suggest that the company's localization strategy—particularly in manufacturing and project execution—still needs work. BYD hasn't yet built strong enough local partnerships or aligned incentives effectively enough. It also can't rely indefinitely on Stella Li to handle nearly every major international relationship by herself.
Many BYD supporters remain very optimistic about Australia, but the company's after-sales network there hasn't kept pace with vehicle sales. Some owners have reportedly had to wait up to six months for replacement parts and repairs. To me, that's a reminder that BYD is still a giant with relatively short operational reach.
As for the stock, my downside scenario puts BYD at around HK$65–70 per share under particularly adverse conditions. That said, I think the company has considerable resilience. If oil prices remain volatile, or if BYD succeeds in building more fully integrated overseas markets that combine manufacturing, sales, and after-sales service, the outlook could improve materially. (For what it's worth, I'm much less confident analyzing Hong Kong equities than mainland A-shares. For the latter, my rough valuation would be around RMB 75 per share.)
Is there a good reason why the Chinese price war won’t just be exported overseas?
Good question, Pete. I do not think that will happen to a major extent, especially not in Europe as the EU and China have agreed on minimum pricing to avoid tariffs.
What the Chinese car makers are doing to compete is loading the default car configuration with many features that e.g. local auto makers charge extra for. Sticker price stays above minimum price but the consumer gets a great deal.
A key metric that I track is the growing share of foreign sales of the Chinese automakers I own as research indicates that they earn a higher gross margin vs. in the domestic market.
I’m sure they do earn a higher margin, but that may only be because the full force of the competition hasn’t arrived yet. That might change as export volumes rise. And minimum pricing - I wonder how long that lasts. Interesting to consider.
Fair challenge. There is early evidence for your side, worth putting on the table: BYD has discounted hard enough in Thailand to draw a government probe and anger buyers since 2024.
My point is that, right now, the gross margin for the companies I own is still higher than their domestic margins, which is why I keep an eye on it. A big discount off a high sticker price doesn't mean the premium is gone; usually, the sticker stays high and the buyer gets the deal. So the price war is spreading, but it's still unclear if a margin war will follow.
We agree on one thing: when several Chinese brands compete in the same market, that’s where margins are likely to fall first. I’m still not sure how soon Thailand will become the rule instead of the exception. That’s why I keep a close eye on margins every quarter.
I also wonder if BYD will be the new Toyota.
I reckon BYD & Geely will be the long term winners from China for the automotive sector.
Locally, BYD will need to endure a long consolidation given the number of auto players (many state-backed) in China. Even with its cost/scale/vertical advantage, margins will continued to be pressured because of consolidation leading to continued involution (even though the government has asked for a stop on the issue). Along the path of consolidation, BYD will also need to navigate autonomous mobility which may also be sector disruptive requiring new competence/thinking.
I think Geopolitics (anti-chhinese sentiment) is BYD's biggest challenge currently with overseas expansion. Thereafter, building out an aftersales ecosystem so that as you say, it becomes a localised operator/brand. I notice many current BYD owners in europe moan about the challenges with repairs (no parts/long lead times/no secondary choice). I also remember it took years for toyota/honda to overcome the "Jap crap" stigma. Just as the 1970s oil crisis was a blessing to Toyota, maybe a new oil crisis maybe a blessing to BYD.
Best wishes with your investment
Based on what I've observed in mainland China, I think BYD is likely to face meaningful headwinds over the next 18 months. China's auto market has entered a phase of replacement demand rather than rapid expansion, making competition much more intense. In response, BYD has reportedly begun pushing some of its sub-brands toward greater operational independence, requiring them to manage their own profits and losses instead of relying heavily on BYD headquarters for R&D resources whenever sales come under pressure.
BYD is also at a relative disadvantage in advanced driver assistance systems (ADAS). For a long time, it sourced much of its ADAS technology from Momenta, and it has generally been more conservative than some competitors when it comes to rolling out consumer-facing features. With Chinese regulators tightening oversight of assisted-driving technologies, the entire industry is becoming more cautious, which means BYD may find it difficult to differentiate itself through ADAS alone.
Internationally, BYD's expansion has been about six to twelve months behind what I had expected. Whether it's political resistance affecting its factory project in Hungary or labor issues in Brazil, these setbacks suggest that the company's localization strategy—particularly in manufacturing and project execution—still needs work. BYD hasn't yet built strong enough local partnerships or aligned incentives effectively enough. It also can't rely indefinitely on Stella Li to handle nearly every major international relationship by herself.
Many BYD supporters remain very optimistic about Australia, but the company's after-sales network there hasn't kept pace with vehicle sales. Some owners have reportedly had to wait up to six months for replacement parts and repairs. To me, that's a reminder that BYD is still a giant with relatively short operational reach.
As for the stock, my downside scenario puts BYD at around HK$65–70 per share under particularly adverse conditions. That said, I think the company has considerable resilience. If oil prices remain volatile, or if BYD succeeds in building more fully integrated overseas markets that combine manufacturing, sales, and after-sales service, the outlook could improve materially. (For what it's worth, I'm much less confident analyzing Hong Kong equities than mainland A-shares. For the latter, my rough valuation would be around RMB 75 per share.)