BYD Profit Drop Shows Even EV Leader Isn’t Safe in Price War
September 2, 2025 | by ltcinsuranceshopper
(Bloomberg) — The fallout is becoming impossible to ignore in the fierce battle among Chinese carmakers.
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With BYD Co. (1211.HK, BYDDY) reporting a staggering 30% plunge in quarterly profit Friday, its first decline in over three years, it’s become clear that not even dominant players are safe in the cutthroat battle for market share. The carmaker’s stock dropped as much as 8% in Hong Kong on Monday, before paring losses.
Despite robust overseas sales, BYD’s net income of 6.36 billion yuan ($892 million) for the three months through June 30 fell short of analysts’ estimates for a modest increase. Heavy discounting saw BYD’s gross margin contract to 18% from 18.8% in the first half of 2024, although that figure is still among the top in the industry, exceeding rivals such as Zhejiang Geely Holding Group Co. and Chery Automobile Co.
The Shenzhen-based giant blamed “industry malpractices” and “excessive marketing” for pressuring its bottom line — an ironic twist considering BYD has been a major driver of the price war, leading multiple rounds of cuts since 2023, including its latest in May. Its most recent discounting campaign prompted the government to warn automakers off “rat-race competition,” saying that price wars can affect supply-chain security and seriously damage the international reputation of “Made-in-China.”
BYD’s stumble comes as a shock given its global expansion has gained pace this year, with the brand making major inroads in markets like Brazil, which accounts for about one-third of its international sales, Australia, Singapore and parts of Europe. Overseas revenue, excluding Hong Kong, Macau and Taiwan, was up 50% in the first six months versus the same period a year ago to 135.4 billion yuan.
A BYD Seal near the company’s dealership in Valencia, Spain.Photographer: Michael Robinson Chavez/Bloomberg
Calling the margin shrinkage “scars of competition,” a note published by research firm Sanford C. Bernstein over the weekend observed that margin pressure persisted despite the higher overseas sales mix. “Increased promotional efforts didn’t achieve anticipated volume growth,” and higher capital expenditure further weighed on margins, analysts including Eunice Lee wrote.
Bernstein maintained its outperform rating but lowered its target price from HK$133 ($17) to HK$130.
Outside of weaker margins, the company’s net profit attributable to shareholders increased at a slower rate, another sign profitability is under pressure. Borrowings jumped to 39.1 billion yuan from 28.6 billion yuan as of the end of last year.
Research and development expenses are also rising quickly, up more than 50% year-on-year, showing the company is leaning heavily into innovation even though margins are tightening. BYD is likely deliberately ramping up spending on core technologies — batteries, electrification and intelligence — as part of its long-term strategy to secure its lead in new-energy vehicles.
Rising material costs, including for its ‘God’s Eye’ advanced driver-assistance system, contributed to weaker margins, according to Morgan Stanley analysts including Tim Hsiao. Still, the results were a surprise and “make us wonder whether there are any one-off or kitchen-sinking factors in play that make second quarter a deep margin trough, with more aggressive cost reduction kicking in from the third quarter,” they wrote.
The company’s latest financial statements indicate BYD is paying suppliers more quickly than before — another key pillar of Beijing’s industry crackdown. While the carmaker didn’t reveal exactly how long it takes to pay, it said the turnover days of trade payables and bills payables were low compared with the auto industry and declined from the same period in 2024.
Back in 2023, BYD was taking an average of 275 days to pay suppliers, a period far exceeding global industry norms, data compiled by Bloomberg showed.
A BYD Atto 2 electric SUV on display during a launch event in Hong Kong in August.Photographer: Chan Long Hei/Bloomberg
The company said in June it would comply with new government rules to pay suppliers within 60 days, a big adjustment that would likely hit its working capital outflows and reduce any flexibility in a downturn.
It may also cause adjustments to other parts of its balance sheet down the line — a report by accounting consultancy GMT Research said that without supply chain financing, BYD’s true net debt would be closer to 323 billion yuan, compared to the 27.7 billion yuan officially on its books as of the end of June 2024.
Nevertheless, the automaking powerhouse isn’t yet under any serious financial strain and a slower pace of growth may well be more sustainable as the company transitions from industry-disrupting upstart to global giant. Its average discount — measured by the margin between a vehicle’s final sale price and suggested sticker price — dipped slightly in July from the month before, data from China Auto Market show.
BYD’s second-half profit margin could recover from a tough second quarter, though remain below 2024 level due to fierce competition in the domestic market, according to Bloomberg Intelligence analyst Joanna Chen. Chinese demand will rise in the fourth quarter ahead of a higher new-energy vehicle tax, and annual sales may hit 5 million units — missing the company’s 5.5 million target, she said.
Still, the carmaker seems to be increasingly turning its attention outside of China, noting that higher profitability there has made its overseas business a key driver for continued growth. “The group has been proactively advancing the planning and construction of additional overseas production capacity to fully prepare for a surge in international demand,” its interim report said.
That’s underpinning longer-term optimism about the company’s growth.
BYD is “well on track to hit 1 million units in overseas volumes, ahead of guidance at 800,000,” Bernstein’s Lee said, adding that annual sales, including both domestic and international shipments, are now forecast to come in at around 5.1 million vehicles for 2025. “BYD is our top outperform pick for the sector.”
