TLDR
- BYD’s quarterly profit crashed 30% to 6.36 billion yuan, marking first decline in three years
- Stock tumbled 8% in Hong Kong after missing analyst expectations by wide margin
- Gross margin squeezed to 18% from 18.8% despite company maintaining industry-leading profitability
- International revenue soared 50% to 135.4 billion yuan as global expansion accelerates
- Borrowings jumped to 39.1 billion yuan as R&D spending surged over 50% year-over-year
BYD Company reported its first quarterly profit decline in over three years Friday. The Chinese electric vehicle giant saw net income crash 30% to 6.36 billion yuan ($892 million) in Q2.
The disappointing results sent BYD stock down as much as 8% in Hong Kong trading Monday. Shares closed at HK$108.40, falling 5.2% for the session.
Analysts had expected modest profit growth to 10.24 billion yuan. Instead, BYD’s earnings missed estimates by a massive margin as the brutal Chinese price war took its toll.
The Shenzhen-based automaker blamed “industry malpractices” and “excessive marketing” for pressuring margins. This criticism seems ironic given BYD has led multiple discount rounds since 2023.
BYD’s latest pricing campaign in May prompted government warnings about “rat-race competition.” Officials worried aggressive discounting could damage China’s manufacturing reputation globally.
Margins Under Severe Pressure
BYD’s gross margin contracted to 18% from 18.8% in the first half of 2024. While still among industry leaders, the squeeze shows even dominant players aren’t immune to competition.
Heavy discounting failed to deliver anticipated volume growth according to Sanford Bernstein analysts. The firm called margin shrinkage “scars of competition” in a weekend research note.
Rising material costs for advanced systems like BYD’s ‘God’s Eye’ driver assistance also weighed on profitability. R&D expenses surged over 50% as the company invests in core technologies.
Borrowings jumped to 39.1 billion yuan from 28.6 billion yuan at 2024’s end. The increased debt load reflects BYD’s aggressive spending on batteries, electrification and intelligence systems.
International Success Story Continues
Despite domestic challenges, BYD’s global expansion accelerated. Overseas revenue excluding Greater China jumped 50% to 135.4 billion yuan in the first half.
Brazil accounts for roughly one-third of international sales. BYD also made major inroads in Australia, Singapore and European markets during the period.
The company is paying suppliers faster under new Beijing rules requiring 60-day payment terms. Previously, BYD took an average 275 days to pay vendors in 2023.
This working capital change will reduce financial flexibility during downturns. GMT Research estimates BYD’s true net debt could reach 323 billion yuan without supply chain financing.
Bloomberg Intelligence analyst Joanna Chen expects margins to recover from Q2 lows. However, profitability will likely remain below 2024 levels due to fierce domestic competition.
Chinese EV demand typically rises in Q4 ahead of tax increases. Annual sales may hit 5 million units, missing BYD’s ambitious 5.5 million target for 2025.
