Is BYD’s 30% Profit Slide Signaling a Turning Point in China’s EV Price War?

Highlights

• BYD’s Q2 net profit plunged nearly 30% to RMB 6.4 billion, its first quarterly decline in over three years.

• Weak margins driven by aggressive price cuts, a RMB 1 billion dealer incentive, and tighter regulatory scrutiny.

• Overseas sales doubled, but rising debt and a growing working capital deficit raise concerns about long-term stability.

Q2 Profit Slumps Amid Intensifying Price Competition

BYD, the world’s largest electric vehicle manufacturer, reported its steepest quarterly earnings setback in years, with net profit dropping nearly 30% year-on-year to RMB 6.4 billion (US $895 million). The figure was well below market expectations and marked the company’s first quarterly profit decline since early 2022.

Revenue rose 14% to RMB 201 billion, highlighting strong sales momentum, yet profitability faltered. Gross margins narrowed sharply to 16.3% from 18.7% a year earlier, reflecting the impact of ongoing discount battles that have reshaped China’s automotive market. Analysts noted that, while top-line growth remained solid, the profit miss underscored the financial toll of competing in a price-sensitive domestic market.

Domestic Strategy and Regulatory Headwinds

The results reveal the mounting risks of BYD’s strategy to defend market share through heavy discounting. Automakers across China have been cutting prices—sometimes by as much as 30%—in a bid to attract buyers amid slowing demand. BYD even extended RMB 1 billion in dealer incentives during the quarter, a costly measure that failed to produce the expected sales lift.

Regulatory authorities have intervened, cautioning manufacturers against unsustainable practices. The government has urged companies to reduce what it calls “involution”—a destructive cycle of internal competition fueled by relentless price cuts. Adding to the strain, BYD recently pledged to settle supplier invoices within 60 days, shortening payment terms that once helped ease its cash flow pressures. This move, while improving supplier relations, has further weighed on working capital.

International Momentum Softens Domestic Pressure

Despite the squeeze at home, BYD’s overseas expansion remains a bright spot. International sales of electric and plug-in hybrid vehicles more than doubled in the first seven months of 2025, surpassing 550,000 units. The company has been aggressively building out global capacity, with factories in Hungary and Turkey, as well as a fleet of dedicated export vessels.

In Europe, BYD recently overtook Tesla in monthly EV sales, signaling its growing foothold in one of the world’s most competitive automotive markets. Overseas gains, however, have not fully offset domestic challenges, and analysts caution that the company may struggle to meet its ambitious full-year target of 5.5 million vehicle sales, having achieved less than half by July.

Financial Strain: Working Capital and Debt Pressures

Beneath the surface, BYD’s financial position shows signs of stress. Its working capital deficit widened sharply from RMB 95.8 billion in March to RMB 122.7 billion at the end of June. The company’s debt-to-asset ratio climbed to 71.1%, reflecting higher leverage and underscoring the cost of financing aggressive growth while margins shrink.

With domestic price wars eroding profitability, BYD faces a delicate balance: sustaining market leadership while ensuring its balance sheet remains robust enough to weather prolonged competition and regulatory tightening.

What Lies Ahead for BYD and China’s EV Sector

Looking forward, BYD must strike a strategic equilibrium between growth and profitability. Stabilizing domestic margins through more disciplined pricing and tighter incentive structures will be critical. Equally important will be sustaining international expansion, particularly in Europe, Southeast Asia, and Latin America, where demand growth remains strong.

The broader industry outlook also carries risks. Analysts warn that China’s crowded EV market—with over 120 brands—will likely see significant consolidation by the end of the decade, leaving only a handful of dominant players. Tariffs, geopolitical tensions, and consumer trust abroad may further complicate BYD’s global ambitions.

Whether this quarter’s setback proves temporary or marks the beginning of a more profound adjustment may depend on how quickly BYD can pivot its strategy—leveraging R&D, strengthening financial discipline, and elevating its global brand. Investors and industry observers alike will be watching closely to see if BYD can turn overseas momentum into a stabilizing force for its business at home.