BYD Shows Chinese Carmakers’ Only Way Out of Slump Is Abroad

(Bloomberg) -- BYD Co.'s overseas revenue exceeded what it made at home for the first time, helping end one of the company's longest profit slumps and illustrating why Chinese carmakers have no choice but to try their luck outside of the world's largest auto market.

First-half sales from overseas rose 34% to 181.3 billion yuan ($27 billion), accounting for 53% of the total, while they shrank 31% in Greater China, according to figures released on Aug. 28 by the world's biggest electric-vehicle maker. That powered a rise in Shenzhen-based BYD's profit for the first time in five quarters.

The results show how the vast Chinese market, where annual vehicle sales outnumber those of the US by nearly two-to-one, has become so brutal that not even its national champion can count on making money there. That's why Chinese carmakers have increasingly turned abroad, where they can charge more for their vehicles, to make money despite ongoing geopolitical risks.

"China's automotive industry entered a stage of profound adjustment and divergence characterized by 'sluggish domestic demand and robust export growth,'" BYD said in its interim report. "The group's overseas growth momentum will continue to be unleashed."

It's been worse for foreign carmakers such as Volkswagen AG and Mercedes-Benz Group AG, which had grown dependent over the past two decades on the Chinese market, where their sales grew exponentially. These days, Chinese consumers increasingly see once highly sought-after foreign cars as overpriced and outdated. US standard-bearer General Motors Co., which once made $2 billion in annual profit in China, has lost money there over the past two years.

BYD fell as much as 2.7% in early trading in Hong Kong on Monday amid a broader drop in stock markets across Asia.

A prolonged industry downturn, now in its 10th month, persisted into July, the latest period for which sales data is available. Total passenger vehicle sales fell 21% last month in the country, based on data from the China Passenger Car Association. As a result, most carmakers, including BYD, saw retail revenue slide at home due to persistent price cuts, according to Bloomberg Intelligence.