BYD battles price wars locally while accelerating global expansion

BYD, China’s biggest electric vehicle manufacturer, reported its first quarterly profit decline in three years. Second-quarter net income tumbled nearly 30% to ¥6.36 billion ($892 million), coming in well below analyst forecasts.

The Shenzhen-based automaker has been expanding rapidly at home and overseas since 2021, but slowing margins have started to weigh on earnings. While revenue climbed 14% year-over-year to ¥201 billion, the gains weren’t enough to offset the pressure from price cuts. Gross margin slipped to about 18%, down from 18.8% a year earlier, underscoring how discounting is eroding profitability.

BYD battles at home with price wars while accelerating global expansion

China remains the world’s largest electric vehicle market, but the competition has grown cutthroat. Giants like BYD, Tesla, Geely, Nio, and Xpeng are locked in a price war, alongside dozens of smaller brands. To stay competitive, BYD slashed prices on more than 20 models this year, with discounts reaching up to 34%.

The strategy boosted sales volumes but squeezed profits, while excess inventory across the industry pushed automakers to cut prices even further. The relentless race to the bottom has already forced some smaller EV startups out of business.

Regulators have started to intervene. In July, Chinese authorities urged automakers to end what they called “involution”,  a destructive cycle where everyone loses. Officials warned that unchecked price wars risk damaging the supply chain and undermining the global reputation of Chinese-made EVs.

Even BYD, which had a hand in starting the price war in 2023, now acknowledges that it isn’t a viable long-term business model. Executives said in June that the current discounting melee was not sustainable and threatened lasting harm to the industry.

BYD’s foreign operations are booming even as profits slump at home. In the first seven months of 2025, international sales more than doubled. The company has made big inroads in Europe, Southeast Asia, and Latin America.

In Europe in May, BYD took Tesla’s monthly sales. It is also constructing factories in Hungary and Turkey, and has chartered a fleet of roll-on/roll-off ships to accelerate exports. Brazil has emerged as one of its largest international markets, representing about a third of international sales.

And yet, despite this momentum, foreign growth hasn’t been enough to fully compensate for soft margins in China. Analysts say higher marketing expenses and more new technology purchases are dragging down profits.

Growth stalls as financial pains worsen

BYD is also confronting expanding financial burdens. And its working capital deficiency increased from ¥95.8 billion as of March to ¥122.7 billion as of June 30. Its ratio of debt to assets rose to 71.1%.

At the same time, the company has had to rethink how it manages payments to suppliers while continuing to offer steep discounts on inventory. Previously, BYD often delayed payments for more than 200 days, far longer than global industry norms. New government rules now require suppliers to be paid within 60 days. Although this shift helps protect smaller suppliers, it reduces BYD’s financial flexibility and piles additional pressure on its balance sheet.

Spending on research and development is increasing, too; it’s up over 50% from a year ago. BYD is relying on a heavy investment in batteries, electrification, and smart-car technologies to protect its long-term lead. Higher-margin brands like Yangwang and Fangchengbao might offer better margins, but building them out will take time.

Analysts have trimmed expectations. BYD had targeted to sell 5.5 million vehicles in 2025, but estimates now project 5 – 5.2 million. The company remains the dominant force in China’s EV business and a global front-runner in the same segment.

Analysts at Sanford C. Bernstein described the shrinking margins as “scars of competition.” However, the firm still holds an outperform rating on the stock and touted BYD’s global scale and technological edge.

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