TLDR
- BYD reported a 30% drop in quarterly profit to 6.36 billion yuan, its first decline in over three years
- Stock fell as much as 8% in Hong Kong trading as results missed analyst expectations
- Company blamed “industry malpractices” and “excessive marketing” despite being a key driver of the price war
- Overseas revenue jumped 50% to 135.4 billion yuan as international expansion accelerates
- Borrowings increased to 39.1 billion yuan from 28.6 billion yuan at end of 2024
BYD Company Limited reported its first quarterly profit decline in over three years. The Chinese electric vehicle giant saw net income fall 30% to 6.36 billion yuan in the second quarter.
The results sent BYD’s Hong Kong-listed shares down as much as 8% on Monday. The stock closed at 108.40 Hong Kong dollars, down 5.2% for the day.
Analysts had expected modest profit growth. Instead, BYD’s earnings of $892 million fell well short of the 10.24 billion yuan consensus estimate.
The Shenzhen-based company pointed fingers at what it called “industry malpractices.” BYD blamed “excessive marketing” for pressuring its bottom line.
This criticism rings hollow given BYD’s role in sparking the price war. The company has led multiple rounds of cuts since 2023, including its latest campaign in May.
BYD’s aggressive discounting prompted a government warning. Chinese officials cautioned automakers against “rat-race competition” that could damage the reputation of “Made-in-China” products.
The margin squeeze was evident in the financial results. BYD’s gross margin contracted to 18% from 18.8% in the first half of 2024.
Despite the pressure, BYD’s margin still exceeds rivals like Geely and Chery. The company maintains one of the highest gross margins in the industry.
International Growth Provides Bright Spot
BYD’s global expansion has accelerated this year. The company made major inroads in Brazil, which accounts for about one-third of international sales.
Australia, Singapore and parts of Europe also contributed to overseas growth. Revenue from outside Greater China jumped 50% to 135.4 billion yuan in the first six months.
Brazil has become a key market for BYD’s international strategy. The company has built manufacturing facilities and dealer networks across the country.
The higher overseas sales mix failed to offset domestic margin pressure. Research firm Sanford C. Bernstein called the margin shrinkage “scars of competition.”
Financial Strain Becomes Visible
BYD’s balance sheet shows signs of stress from the price war. Borrowings jumped to 39.1 billion yuan from 28.6 billion yuan at the end of 2024.
Research and development expenses surged more than 50% year-over-year. The company is investing heavily in batteries, electrification and intelligence technologies.
Rising material costs also weighed on margins. BYD’s ‘God’s Eye’ advanced driver-assistance system added to component expenses.
The company is paying suppliers faster than before. This aligns with Beijing’s crackdown on extended payment terms in the auto industry.
BYD previously took an average of 275 days to pay suppliers in 2023. This far exceeded global industry norms and gave the company significant working capital advantages.
New government rules require payment within 60 days. This change will likely impact BYD’s cash flow and reduce financial flexibility during downturns.
Morgan Stanley analysts questioned whether one-off factors affected the second quarter. They suggested the period might represent a “deep margin trough” before cost reductions kick in.
The company’s latest financial statements show faster supplier payments. BYD said its payable turnover days were low compared with industry peers and declined from 2024.
Without supply chain financing, BYD’s true net debt could reach 323 billion yuan according to GMT Research. This compares to the 27.7 billion yuan officially reported as of June 2024.
BYD’s average discount dipped slightly in July from the previous month. Data from China Auto Market shows the margin between final sale prices and sticker prices narrowed.
Bloomberg Intelligence analyst Joanna Chen expects second-half margins to recover from the tough second quarter. However, profitability will likely remain below 2024 levels due to fierce domestic competition.
Chinese demand typically rises in the fourth quarter ahead of tax increases. Annual sales may reach 5 million units, missing BYD’s 5.5 million target according to Chen.
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