China’s largest electric vehicle maker, BYD, has reported its first profit drop in more than three years, highlighting the growing strain from an escalating price war in the country’s auto market. The company’s net profit for the second quarter of 2025 fell nearly 30% year-on-year to 6.36 billion yuan, well below market expectations, prompting a decline in BYD share value.
The financial setback triggered an immediate reaction in the markets, with BYD shares sliding sharply in Hong Kong and other exchanges. Investor confidence was rattled further by production figures that revealed consecutive monthly declines — the first since 2020. In August alone, output fell by nearly 4% compared to the previous year, while domestic sales slipped for the fourth straight month. These indicators suggest that BYD may struggle to meet its ambitious annual sales target of 5.5 million units, having achieved just over half of that so far.
Much of the decline stems from aggressive price cuts across its vehicle lineup. To stay competitive, BYD discounted more than 20 models, in some cases by over 30%, prioritizing market share at the cost of profitability.
Weak Home Market, Strong Global Expansion
Despite weakening demand at home, BYD continues to make strides in international markets. Overseas sales of electric and plug-in hybrid vehicles have almost doubled in the first seven months of the year, positioning the brand as a major global competitor. Earlier this year, BYD overtook Tesla as Europe’s best-selling EV maker, underscoring its growing international influence and boosting BYD share performance.
The company has also invested heavily in overseas production capacity, with projects in Hungary and Turkey aimed at strengthening its foothold beyond China. International growth has become an essential part of its strategy as competition intensifies in its domestic market, where rival brands are also offering steep discounts to lure buyers.
Meanwhile, BYD’s share of China’s new energy vehicle sector has slipped noticeably. The company, once a dominant force, now faces a shrinking market share as smaller rivals chip away with budget offerings. Analysts warn that widespread discounting could reduce industry-wide profitability and hinder long-term innovation.
Strategic Shifts and Investor Outlook
BYD’s vertically integrated model — where it produces many of its own components, including batteries — has traditionally given it an advantage over rivals. However, recent regulatory pressure on extended supplier payments, coupled with shrinking margins, has narrowed that edge. The company’s gross margin has now fallen to just over 16%, reflecting the depth of pricing pressure across the sector and weighing on BYD share performance.
In response, BYD is pivoting toward higher-margin vehicles and international expansion to offset domestic weakness. While this shift offers growth potential, it also carries execution risks, particularly as the global EV market itself becomes more competitive. Investors are now closely watching whether BYD can maintain its global momentum while stabilizing its home market performance.
As the Chinese EV industry matures, the focus is shifting from sheer sales volume to sustainable profitability. BYD’s latest results serve as a stark reminder that even market leaders are vulnerable to the pressures of aggressive pricing and changing consumer demand, which has impacted BYD share performance.
