Should You Buy BYD Before or After China's Auto Market Implodes?

Rumblings and frustration with both foreign and domestic automakers in China's market are growing louder. The Chinese market has been in a deep price war since a plethora of domestic electric vehicle (EV) makers have popped up, saturating the market. This was happening just as the government was withdrawing subsidies, creating a precarious situation.

Consolidation could be a huge opportunity for BYD (OTC: BYDDY) and its investors, but should you buy now or wait until the industry balances?

A reckoning for the weak

Recent data from the China Automobile Dealers Association emphasizes how dire the situation has become for profitability in the region. About 56% of dealerships in China reported losses last year, up sharply from 42% the year before. When removing the dealerships that merely broke even, less than 25% of dealers turned a profit last year, down from a still disappointing 39% in 2024.

Image source: BYD.

It's worrisome that the market seemingly still hasn't found a rock bottom, and now even major players such as BYD are feeling the pinch. BYD's 2025 full-year net profit sank 19% as the price war continued to erode margins for the world's largest EV maker, with analysts and investors alike predicting a reckoning of sorts and industry consolidation. In fact, it was BYD's first profit decline since 2021. BYD's net profit margin was trimmed to 4.1% last year, from 5.2% the prior year, prompting a warning from the automaker's CEO, Wang Chuanfu, that the industry is entering a "knockout stage," threatening weaker players.

The question for investors is whether this is a buying opportunity now, later, or a stock to avoid.

Is BYD stock a buy?

After posting years of impressive sales growth and overtaking Tesla as the world's largest seller of EVs, it might seem like a strange time to buy into BYD, considering it posted its seventh consecutive month of year-over-year sales declines in March. Savvy investors, however, see the long-term potential beyond the Chinese price war and oversaturation speed bumps. Here are a couple of factors to consider.

First, remember that BYD's global expansion is still in the early innings. In fact, BYD raised its 2026 export target from 1.3 million vehicles to 1.5 million vehicles, emphasizing that the automaker's growth prospects are on the verge of shifting from domestic sales to global; BYD topped 1 million export vehicles for the first time just last year.

Second, remember that BYD has competitive advantages with its vertical integration and cost efficiency. BYD produces roughly 80% of its vehicle components in-house, including critical components such as semiconductors and some of its batteries. BYD is more capable of offsetting pressures from the domestic price war than arguably any domestic rival.

For investors, it's likely that BYD emerges from the Chinese price war with less competition and potentially even stronger. It has global expansion plans in the early innings and continues to develop EV infrastructure alongside its expanding customer base. While BYD is facing a price war in its homeland and changing trade policies and tariffs overseas, this might be a great time to start a small position in an automaker well positioned to survive the "knockout stage" in China.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.