BYD is seeking to reduce costs in its supply chain by demanding a 10% price cut from its suppliers. The move, symptomatic of a bitter price war, is exacerbating tensions in an already saturated market. BYD intends to reign supreme next year on the electric car market.
BYD, the emperor under pressure
In the upper echelons of Chinese automobiles, the electric vehicle market resembles a battlefield where each manufacturer wields its secret weapon. But at BYD, first in class, we no longer send Tesla-style technological missiles: we cut costs, without qualms. The Shenzhen-based giant has decided to make its supply chain sweat, demanding a 10% price reduction from its suppliers. A letter signed by He Zhiqi, executive vice president, is circulating like wildfire: “In 2025, the competition will intensify, the elimination rounds will begin. To survive, you have to reduce costs.” A straightforward speech. Except this time, even the most seasoned insiders in the sector raise an eyebrow.
This is because the price war, started by Tesla in 2021 with shock reductions on its Model 3 and Model Y, has pushed the 200 Chinese manufacturers of electric vehicles to their limits. And if BYD dominates with a 36.1% market share, this leadership is not as unshakeable as it seems. The equation is simple: to keep the crown, you have to crush the competition. But when we tighten the screw, an entire ecosystem creaks. On the ground, this “elimination round” announced by BYD will give no quarter. While the leaders play on equal terms, suppliers and small manufacturers become the collateral damage of this merciless trade war.
Unbearable pressure for suppliers
On paper, BYD’s strategy seems clear: its dominance is based on an ultra-integrated supply chain, an asset that allows it to dictate its terms. But in reality, this decision could weaken the very cogs that make the machine turn. Take Chongqing Sulian Plastic, or even Alnera Aluminum, a specialist in alloy battery parts. Since the appearance of this famous letter, their shares have plunged 3% and 4%. It’s not just a matter of numbers: these companies, much smaller than BYD, have neither the margins nor the financial means to absorb such a shock.
Li Yunfei, a BYD spokesperson, tried to calm things down by saying that annual price negotiations were “common” in the industry, reports the New York Times. But on Weibo, criticism is pouring in. Internet users point the finger at “shameless exploitation” subcontractors, with some predicting massive pay cuts or job cuts on the assembly line. In an economy where the job market is already faltering, anger is brewing. For Bill Russo, expert from the consulting company Automobility, “BYD is willing to sacrifice margins to strengthen its position.” But this killing game has a price. Suppliers, who are more vulnerable, risk buckling under pressure, leading to instability which could ultimately cost BYD itself dearly. The other key element is the international context. Between new taxes targeting Chinese manufacturers and uncertainty over possible trade wars, the room for maneuver is shrinking. BYD, as market leader, seems forced to play this aggressive card in order not to lose control against Tesla and other emerging manufacturers.. For small players, the tone is set: survival will require sacrifices. Even Maxus, a manufacturer owned by SAIC, is following suit and in turn demanding similar price cuts.
