“Overheated Competition, Subsidy Cuts Spark Fallout”: China’s EV Giant BYD Posts First Sales Decline in July

$428 Billion in Debt and Three Months' Worth of Inventory
Profitability Deteriorates Amid Discount War and Inventory Buildup
Government Support Reaches Limits as Sales Slump

BYD, China’s leading electric vehicle (EV) manufacturer, is facing a critical management crisis after years of explosive growth, marking its first-ever sales contraction. Oversupply, distribution network collapse, ballooning debt, and mounting quality concerns are fueling speculation that BYD could become “the next Evergrande,” with analysts warning that China’s EV juggernaut is now grappling with the side effects of unchecked market overheating.

Deep Discounting Seen as “Drinking Poison to Quench Thirst”

According to the South China Morning Post on August 5, BYD’s vehicle sales in July grew just 0.6% year-on-year, while production declined 0.9%, marking the company's first negative growth. The situation was more severe in the plug-in hybrid (PHEV) segment, where sales plunged 22.6% and production dropped 24.6%. This marked the first downturn since the sustained rally that began in January, widely interpreted as a consequence of a fierce price war. In May, BYD slashed prices by up to 30% on its entry-level and hybrid models, igniting a wave of discounting among rivals such as Li Auto and NIO. The situation escalated to the point where Chinese authorities issued warnings urging automakers to refrain from excessive competition.

BYD’s deteriorating position is backed by hard numbers. The company currently offers discounts of up to 34% on 22 different models and has built up inventory equivalent to 3.2 months of production. Its total liabilities stand at $428 billion, roughly 80% of its annual revenue of $541 billion. The CEO of Chery Automobile, one of China’s top five automakers, criticized the strategy, stating that “offering discounts as high as 34% is like drinking poison to quench thirst.”

Particularly concerning is the delayed payment to suppliers. BYD reportedly takes an average of 275 days to pay its vendors—1.5 times longer than the Chinese manufacturing average of 182 days, and nearly three times longer than the 90–100 days typical among Western competitors. Although new regulations effective June 1 mandate payment within 60 days, BYD has yet to comply.

Beijing Slashes EV Subsidies in Bid to Curb Overproduction

China’s decision to cut back on EV subsidies has also exacerbated BYD’s sales decline. The Ministry of Industry and Information Technology (MIIT), China’s counterpart to South Korea’s Ministry of Trade, Industry and Energy, recently released its preliminary audit of the “2016–2020 New Energy Vehicle (NEV) Promotion Subsidy Settlement.” BYD received $27.4 million less than it had claimed, with the MIIT citing insufficient documentation, failure to submit operational data, and failure to meet subsidy criteria.

Local media interpreted the announcement as part of a broader effort to wean companies off “subsidy dependence” and transition the EV industry into a more market-driven phase. The move also reflects China’s desire to distance itself from subsidies as it navigates trade frictions with the U.S., where such financial support has been a contentious issue.

Beijing’s approach to subsidies has evolved over time. Since 2017, support criteria have become more stringent, focusing on technical benchmarks such as vehicle range and energy efficiency. By 2019, the policy direction had shifted toward subsidy reduction and tighter oversight, culminating in concrete subsidy caps by 2020. In response, major EV firms have recalibrated their strategies, emphasizing technological independence and global expansion. A senior executive at a Chinese EV company remarked, “Under the law of survival of the fittest, we must enhance core competencies like intelligent technology to compete globally.” Within the industry, there is now broad consensus that performance—not subsidies—will determine survival.

Distribution Network Collapse and Eroding Consumer Trust

The collapse of BYD’s distribution network has accelerated the company’s downward spiral. According to Chinese media reports, authorized BYD dealerships are closing across the country. Some dealers have absconded with large sums of money, while vehicle delivery, maintenance, and software-linked services have been suspended. “Even the once-celebrated integrated service network under the ‘BOYS’ program is no longer operational,” one local source revealed, suggesting a systemic collapse in BYD’s retail structure. Unofficial reports within the industry even estimate BYD’s actual debt at nearly $775 billion—almost double the official figure—highlighting the palpable sense of crisis among stakeholders and consumers.

Quality issues are further eroding confidence. Some technicians claim that the underbody structure of BYD’s flagship models, the Qin and Tang, is highly vulnerable to impact, and that substandard materials used in these vehicles pose severe safety risks. Reports of wheel collapses and broken suspension links have surfaced, and customer complaints are rising. Even vehicles under a year old have been plagued by defects such as peeling steering wheel coatings, warped panels, and degraded rubber components.

The situation has even distorted the used-car market. With new car prices plunging, some dealers have resorted to selling zero-mileage vehicles as used cars. “As prices plummet, we’re seeing brand-new cars being marketed as secondhand,” one dealer said. As a result, vehicle values are halving within a year, severely damaging consumer confidence. BYD’s Blade Battery—once a symbol of its technological prowess—has not escaped scrutiny either. Some vehicles have seen battery health fall below 80% after just 50,000 kilometers, with further degradation to the 70% range after 100,000 kilometers. Experts argue that BYD’s obsession with breakneck growth has come at the expense of quality.

Distribution Network Collapse and Eroding Consumer Trust