BYD is pushing its suppliers in China's price war for electric cars

BYD is pushing its suppliers in China's price war for electric cars

China's leading electric vehicle (EV) maker BYD is aiming for significant cost cuts on auto parts next year. This demand suggests that the merciless price war in the industry continues and the economic outlook is clouded by falling wages and uncertainty.

BYD demands price reductions from suppliers

BYD, Tesla's main rival, has demanded a supplier cut prices by 10% next year. A widely shared screenshot of a letter dated Tuesday and signed by He Zhiqi, a vice president of the Shenzhen-based company, makes the request clear.
“In 2025, while there will be great opportunities in the EV market, market competition will also intensify and move into decisive battles,” he further wrote. “To increase the competitiveness of BYD passenger cars, we must ensure that the entire supply chain works together and continuously reduces costs.”

Confirmation and reactions to the price request

CNN has reached out to BYD for comment but has not yet received independent confirmation of the authenticity of the letter. However, on Wednesday, Li Yunfei, BYD's general director of branding and public relations, appeared to confirm the letter in a post on his verified Weibo account.
“Annual price negotiations with suppliers are a common practice in the automotive industry,” Li said. "We set price reduction targets for suppliers. These are not binding and everyone can negotiate."

The challenges of the Chinese car market

China's automobile market has been the largest in the world for 15 years. But two years ago, when Tesla cut prices for its Model 3 and Y models by up to 9% in China, it also became the most competitive. Observers describe this as a “race of life and death.” More than 200 EV manufacturers in China are facing massive overproduction, and experts predict that many smaller companies will not survive in the fierce competition.

Further price inquiries from the industry

A letter from Maxus, an automaker under state-run SAIC Motor, that circulated online earlier this week also called for a 10% price cut, citing the need to "survive" in a "complex situation." CNN has reached out to the company for comment. “Market leaders are willing to sacrifice margins to gain market share in the race to an electric future,” said Bill Russo, founder of Shanghai-based consultancy Automobility. “BYD is the most aggressive as they seek to leverage their vertically integrated supply chain and cost advantages to ensure their dominance in the market.”

Price wars and their effects

Ongoing competitive conditions, additional tariffs from the European Union and uncertainty over future trade relations - such as the possible return of the Trump administration - could leave China's EV makers little choice but to cut costs wherever possible, said Tu Le, managing director of Sino Auto Insights.
“This means that the price war is putting a lot of strain on the system,” Le said. “Even the most powerful OEMs feel vulnerable.” OEM refers to Original Equipment Manufacturers, a term that includes manufacturers such as Ford and General Motors. BYD held 16.2% of the total vehicle market and 36.1% of the EV market in the first 10 months of the year, according to the China Passenger Car Association.

Impact on suppliers

A major concern is that price cuts could place undue burden on suppliers, as they are typically a fraction of the size of the OEMs and do not have the capital that OEMs do. Concerns about the impact of price cuts on people's livelihoods during an economic downturn made BYD one of the most discussed topics on Weibo on Thursday, with a total of 19 million views. Commentators speculated that many automotive suppliers would be forced to cut pay in an already bleak labor market in the new year.
“Supply chain exploitation is their best skill, not treating rank-and-file employees as human beings,” read one comment with more than 1,000 likes.

Market developments and share prices

Shares of Chongqing Sulian Plastic, a BYD supplier that sells fuel pipes and other automotive parts, fell more than 3% over two trading sessions this week since the letter surfaced. Another supplier, Alnera Aluminum, which makes aluminum alloy parts for EV battery systems, saw its share price fall 4% over the same period.