👉 Background: BYD is the Chinese electric vehicle giant founded in 1995 as a rechargeable battery company called "Bǐyàdí". It evolved into an electric vehicle company, selling its products into Western markets, with the slogan Build Your Dream. With the backing of Warren Buffett, BYD has grown into the world’s largest EV producer overtaking Tesla in 2024.

‍👉 What happened: Despite its rapid growth, BYD has reported a 30% drop in net profit in the second quarter - down to  6.4 billion yuan (or $895 million USD). This was BYD's first quarterly decline in more than three years. Next minute: BYD’s investors slammed on the brakes and its Hong-Kong listed shares fell 5% while its Shenzhen-listed shares fell 4%.

‍👉 What else: Recently the Chinese government has ordered car makers to stop making more price cuts. And investors are worried that this may actually ruin BYD’s competitive position.

‍What's the key learning?

‍💡Businesses competing on price alone risk a race to the bottom. Sustainable growth usually comes from differentiation - that might be differentiation in brand, technology, or customer loyalty… but not just being the cheapest.

💡BYD’s main differentiator, is the fact that it owns both the car brand and the underlying batteries. This means it had the ability to go-real-low on price. In fact, average car prices in China have fallen by around 19% over the past two years.

💡But the Chinese government is concerned that this race to the bottom could damage the Chinese economy. So now that price cuts have been limited by the Chinese government, investors are worried that BYD can’t undercut its prices any more to win market share.