BYD Sell-Off … Price War Looming?

Could reports that car maker BYD (HKEx: 1211) has slashed prices in order to sell off bloated inventory sitting on dealer lots mean the beginning of a price war for China’s overheated car industry? Some mainland media are saying yes. After all, car makers are already under pressure to keep their red hot sales going, lest China lose its crown as world’s biggest car market, even after Beijing scrapped many of the incentives that caused the market to overheat in the first place. We’re already seeing sales growth slow, and Chinese companies are famous for their willingness to sacrifice everything — including profits — to keep their top line growing. Still, talk of a price war could be premature. In my view, BYD has lots of lemons sitting on dealer lots, and is desperate to get them out of the system and onto the roads. This could lead to temporary pricing pressure, but once these clunkers are out of the way we should see sales slow but prices staying relatively stable.