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

(Source: Caiwen)

          The current profit decline resembles a "proactive shift," rather than a stall.            

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

On the surface, it still looks stable: annual sales reached 4.6 million units, a year-on-year increase of 7.73%; revenue was 804 billion yuan, up 3.46% year-on-year. 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, a deeper look reveals that the company is clearly under pressure: net profit was 32.6 billion yuan, down nearly 19% year-on-year; net profit margin fell to 4.06%; and the gross margin for automobiles also dropped to 20.49%. This marks the first time in four years that BYD has reported an annual report of “increased revenue but decreased profit.” In other words, while they sold more cars, they earned less on each vehicle sold. This is also the most accurate reflection of the current state of the entire domestic new energy vehicle industry.

Unbearable “Price War”

Apart from “internal competition,” “price war” has become a hackneyed term in the automotive industry over the past few years. By 2025, the penetration rate of new energy vehicles in China is expected to exceed 50%, with the industry continuing to advance. In terms of scale, BYD firmly holds a spot among the top tier in 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,” with a qualitative change in the competitive landscape, where competition among companies has gradually evolved from competing on technology and products to competing on price and efficiency.

In such an environment, the price war has become an unavoidable choice for all automakers.

BYD is no exception. Financial reports show that its average selling price per vehicle has fallen to 141,000 yuan, a year-on-year decline of 2.42%, while the automobile gross margin has decreased by 1.82 percentage points, and the net profit margin has dropped below 5%. Even with BYD’s industry-leading vertical integration capabilities and cost control advantages, it cannot fully offset this pressure. In other words, when the entire industry enters an “internal competition” phase, the advantages of leading companies are more reflected in their ability to withstand pressure, rather than being completely immune.

No R&D, No Progress

Besides price factors, another important reason for the profit decline is that BYD is currently in a high-investment cycle. By 2025, the company’s R&D investment is expected to exceed 63 billion yuan, a year-on-year increase of 17%. Among the domestic automakers that have released annual reports, BYD’s investment scale surpasses the sum of the four leading companies: Geely Automobile (00175.HK), Great Wall Motors (02333.HK), Chery Automobile (09973.HK), and Xiaopeng Motors (XPEV.US).

These investments are primarily focused on several key areas, including smart driving, electric platform upgrades, and high-end brand development. Whether it’s the “Eye of God” smart driving system or the advances of brands like Yangwang and Denza, as well as the recently launched second-generation fast charging technology, they are essentially preparing for future competition.

However, investments in technology and branding have a significant lag, making it difficult to translate into profits in the short term and instead lowering overall profitability. This is why, despite sales growth, net profits have shown a significant decline.

At the same time, BYD’s cash flow has also experienced significant changes. By 2025, the net cash flow generated from operating activities is expected to decline by over 55% year-on-year. Behind this change is the increased investment in the supply chain during the company’s expansion and issues related to shortening supplier payment terms and enhancing industry norms, which has led to capital occupation problems. Coupled with the pressures from inventory and market competition, the company’s capital utilization efficiency has faced certain shocks in the short term. This is also directly reflected in the tightening of dividend policies.

It can be said that BYD is supporting growth with a “heavier” capital model, which is not uncommon in a phase of intensified industry competition, but also means the company has entered a stage that tests its overall capabilities more thoroughly.

Variables Overseas

If we broaden our perspective from the domestic market, we can see another more promising clue forming. That is the rapid rise of BYD in overseas markets. By 2025, BYD’s new energy vehicle exports are expected to exceed one million units for the first time, with a year-on-year increase of 140%, showing a clear acceleration in overseas business. Meanwhile, in the first two months of 2026, its overseas sales continue to maintain a high growth rate, with an increasing share.

Regionally, the Latin American market has become an important foothold, the European market has made breakthroughs, and emerging markets like Southeast Asia are also rapidly expanding. This indicates 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 the investment phase. Channel construction, localized production, brand promotion, etc., all require continuous investment. Therefore, although sales are growing rapidly, their contribution to profits has not yet been fully realized.

In the long term, the importance of overseas markets is self-evident. Compared to the highly competitive domestic environment, overseas markets have better conditions in terms of pricing systems, competitive intensity, and brand premium space. Once scale and brand establishment are completed, their support for profits is expected to gradually emerge.

Returning to the present, what BYD faces is not a simple fluctuation in performance, but a transition in its development stage. In the past few years, it relied on technology and scale for rapid expansion, completing a leap from a follower to an industry leader. Starting in 2025, it needs to simultaneously cope with a more complex situation: price competition in the domestic market, continuous investment in technology, and the long-term challenges brought by globalization. In this context, a 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 shift from “scale leadership” to “quality leadership” in this round of industry elimination competition. If it can form a synergy in technology, premiumization, and globalization, then the current profit decline is more like a “proactive shift,” rather than a stall.

For a car company that is moving towards global markets, this may be a necessary phase to go through.