BYD's "Struggling" Financial Report: Net Profit Down 19%, Slowing Down or Proactively Shifting Gears?

Ask AI · How will high R&D investment affect BYD’s future competitiveness?

On March 27, BYD (002594.SZ) delivered a somewhat “twisted” report card.

On the surface, it still looks stable: annual sales of 4.6 million units, a year-on-year increase of 7.73%; revenue of 804 billion yuan, a year-on-year increase of 3.46%. BYD remains a company experiencing rapid growth. Against the backdrop of global new energy vehicles still in an expansion cycle, BYD continues to hold a leading position in the industry.

However, looking deeper, the company is clearly under pressure: net profit of 32.6 billion yuan, down nearly 19% year-on-year; net profit margin dropped to 4.06%; and automotive gross margin also fell to 20.49%. This is the first time in four years that BYD has submitted a report showing “increased revenue without increased profit.” In other words, they are selling more cars, but earning less per vehicle sold. This is also the most accurate reflection of the current state of the entire domestic new energy vehicle industry.

Unbearable “Price War”

In addition to “internal competition,” “price war” is a term that has been overused in the automotive industry in recent years. By 2025, the penetration rate of new energy vehicles in China is expected to exceed 50%, with the industry continuing to surge forward. In terms of scale, BYD remains firmly in the first tier of global new energy sales. However, the problem is that industry growth and rising sales do not equate to profit growth. The market has shifted from “incremental dividends” to “stock game,” and the competitive landscape has undergone a qualitative change, with competition between enterprises gradually evolving from competing on technology and products to competing on price and efficiency.

In such an environment, price wars have almost become an unavoidable choice for all automakers.

BYD is no exception. Financial reports show that its average selling price per vehicle has declined to 141,000 yuan, a year-on-year decrease of 2.42%, with automotive gross margin dropping by 1.82 percentage points, and net profit margin falling below 5%. Even though BYD possesses industry-leading vertical integration capabilities and cost control advantages, it cannot fully offset this pressure. In other words, when the industry as a whole enters the “internal competition” phase, the advantages of leading enterprises are more reflected in their ability to withstand pressure, rather than being completely immune.

Without R&D, it will fall behind

In addition to price factors, another significant reason for the decline in profit is that BYD is currently in a high-investment cycle. By 2025, the company’s R&D expenditure is expected to exceed 63 billion yuan, a year-on-year increase of 17%. Among domestic automakers that have released annual reports, Geely Auto (00175.HK), Great Wall Motors (02333.HK), Chery Auto (09973.HK), and XPeng Motors (XPEV.US), BYD’s investment scale is higher than the combined total of these four leading automakers.

These investments are primarily focused on several key areas, including intelligent driving, electric platform upgrades, and high-end brand development. Whether it’s the “Eye of God” intelligent driving system, the promotion of brands like Yangwang and Tengshi, or the recent launch of the second-generation fast charging technology, these are essentially preparations for future competition.

However, investments in technology and brands have a clear lag effect, making it difficult to convert into profits in the short term, which instead lowers overall profitability. This is why, despite an increase in sales, net profit has shown a significant decline.

At the same time, BYD’s cash flow has also shown significant changes. By 2025, the company’s net cash flow from operating activities has decreased by more than 55% year-on-year. Behind this change is the increase in supply chain investments during the expansion process, as well as issues related to actively shortening supplier payment terms and improving industry standards. Coupled with pressures from inventory and market competition, the efficiency of the company’s capital usage has suffered a certain impact in the short term. This is also directly reflected in the tightening of dividend policies.

It can be said that BYD is using a heavier funding model to support growth, which is not uncommon during a phase of intensified industry competition, but it also means the company has entered a stage that tests its overall capabilities more.

Variables Overseas

If we broaden the perspective from the domestic market, we can see another line of thought that holds greater imaginative potential: the rapid rise of BYD in overseas markets. By 2025, BYD’s export of new energy vehicles has surpassed one million units for the first time, with a year-on-year growth of 140%, showing a clear acceleration in its overseas business. At the same time, in the first two months of 2026, its overseas sales have maintained high growth rates, with a continuously increasing share.

From a regional perspective, the Latin American market has become an important foothold, the European market has achieved breakthroughs, and emerging markets such as Southeast Asia are also experiencing rapid growth. This means that BYD’s growth logic is gradually shifting from a single Chinese market to a global market.

However, it is important to view this rationally, as the overseas market is still in an investment phase. Channel development, local production, brand promotion, etc., all require continuous investment, so although sales are growing rapidly, the contribution to profits has not yet been fully realized.

In the long run, the significance of overseas markets is self-evident. Compared to the highly competitive environment in China, overseas markets offer better conditions in terms of pricing systems, competition intensity, and brand premium space. Once the scale and brand are established, their support for profits is expected to gradually emerge.

Returning to the present, what BYD faces is not simply a fluctuation in performance, but a shift in developmental stages. In the past few years, it has relied on technology and scale for rapid expansion, completing the transition from a follower to an industry leader. Starting from 2025, it needs to cope with a more complex situation: price competition in the domestic market, sustained investment in technology strategies, and long-term challenges brought by globalization. In this context, the temporary pressure on profits becomes an understandable result.

What truly deserves attention is not the short-term fluctuations in BYD’s profits, but whether it can complete the transition from “scale leading” to “quality leading” in this round of industry elimination competition. If it can form synergy in technology, high-end positioning, and globalization, then the current decline in profits appears more like a “proactive shift” rather than a loss of speed.

For a car company that is moving towards global presence, this may be a process it must undergo.