3.21
33%
20+
0.2%
Unprecedented Inventory Crisis Forces Production Cuts
BYD has cancelled night shifts and reduced output by at least a third of the capacity at some of its factories, with these measures imposed on at least four factories. This dramatic production slowdown represents the first major challenge for the Chinese electric vehicle champion that has rapidly risen to become the world's largest EV manufacturer.
BYD has risen to become the world's largest EV maker within the span of a few years by aggressively increasing production and speeding up the rollout of new and more affordable models. However, this rapid expansion strategy has collided with market realities as competitive price cuts failed to clear accumulating inventory.
Production Data Reveals Dramatic Slowdown
Reality Check: BYD's output growth slowed to 13% and 0.2% year-on-year in April and May, respectively, both of which were the slowest pace since February 2024.
Strategic Pivot: BYD sold 4.27 million cars last year, mostly in China, and has targeted a near-30% rise in sales to 5.5 million this year.
Dealer Network Under Severe Pressure
The inventory crisis has created devastating consequences for BYD's dealer network. A large BYD dealer in the eastern province of Shandong has gone out of business with at least 20 of its stores found to be deserted or shut, highlighting the financial strain across the distribution network.
Qiancheng Holdings, which once had an annual turnover of 3 billion yuan ($416.71 million) and employed 1,200 people, published a letter blaming adjustments BYD had made to its dealer policy for its financial crisis.
More than 1,000 consumers were still owed warranty coverage and after-sales services following the dealership closures, creating significant customer service challenges.
Multiple dealership groups across eastern China have shuttered operations, with some locations completely abandoned and staff unpaid for months.
The China Auto Dealers Chamber of Commerce in early June called on automakers to stop offloading too many cars on dealerships and to set "reasonable" production targets.
Price War Strategy Backfires
Aggressive Discounting Campaign
BYD's recent price incentives reduced the starting price of its cheapest model to 55,800 yuan ($7,800), which triggered a broader selloff in Chinese auto stocks and fresh price cuts from rivals. The Seagull hatchback, already the company's most affordable model, saw a 20% price reduction that garnered global attention.
Market Response: Despite these dramatic price cuts, inventory levels continued to rise, suggesting that demand weakness extends beyond pricing considerations and reflects broader market saturation in China's EV sector.
Financial Market Reaction
BYD has lost $21.5 billion in market value since its shares peaked in late May, reflecting investor concerns about the sustainability of aggressive expansion.
Even after the number of EV makers starting shrinking for the first time last year, the industry is still using less than half its production capacity.
People are complaining on China's social media, wondering why they should buy a car now when it may be cheaper next week, creating demand uncertainty.
Chinese automakers are now increasingly looking for overseas markets to prop up sales and offset weakening momentum in their home market.
International Strategy Becomes Critical Lifeline
BYD's sales are expected to double in Europe this year to around 186,000 units. By 2029, S&P Global Mobility forecasts BYD's sales could reach around 400,000 in Europe. The company's European expansion includes new manufacturing facilities to bypass tariff barriers and establish local production capability.
What you're seeing in China is disturbing, because there's a lack of demand and extreme price cutting. Eventually there will be massive consolidation to soak up the excess capacity.
Government Intervention and Market Regulation
Chinese authorities are trying to minimize the fallout, chiding the sector for "rat race competition" and summoning heads of major brands to Beijing last week. Auto CEOs were told they must "self-regulate" and shouldn't sell cars below cost or offer unreasonable price cuts.
Market Outlook and Strategic Implications
BYD is coming off its sixth straight month with record overseas sales in May after selling over 89,000 NEVs outside of China. While domestic challenges persist, the company's international expansion strategy and planned production facilities in Hungary and Turkey position it for continued global growth.
The current production adjustments reflect a necessary recalibration rather than fundamental business failure. Between its new plants in Hungary and Turkey, BYD is expected to have a combined annual production capacity of over 500,000 units, providing geographic diversification away from oversaturated Chinese markets.
