The investment thesis for BYD is undergoing a significant shift. While the Chinese electric vehicle (EV) giant continues to post impressive delivery figures, investors are increasingly scrutinizing the sustainability of its business model amid regulatory headwinds, cooling domestic demand, and a stark profitability gap versus its global rival, Tesla.
Profitability Lags Behind Soaring Volumes
A clear divergence has emerged between BYD’s sales momentum and its earnings power. Operational data reveals a challenging picture:
* Global sales of pure battery electric vehicles reached 2.26 million units in 2025.
* The company’s international business expanded by 145% year-over-year.
* Despite this, Q3 2025 net profit plummeted by 32.6% to 7.8 billion yuan (approximately $1.1 billion USD), marking the steepest quarterly decline in over four years.
* Quarterly revenue fell to 195 billion yuan, the first drop in more than five years.
* Profit per vehicle declined sharply to just 4,800 yuan in Q2 2025, down from 8,000 yuan in the preceding quarter.
Although its gross margin of 17.9% remains close to Tesla’s 18%, the earnings disparity per car is pronounced. Tesla generates roughly $6,000 in profit per vehicle, a benchmark that highlights BYD’s margin vulnerability in an increasingly competitive pricing environment.
Regulatory Hurdles in Europe
BYD’s ambitious European expansion is encountering new obstacles. The European Union is formulating guidelines that will require Chinese manufacturers to declare minimum prices for their EV exports into the region, a move confirmed by China’s commerce ministry.
This creates a more complex regulatory landscape for BYD and its peers as they seek to grow their presence. The company has already surpassed Tesla in sales volume in key European markets like the UK and Germany in 2025. Collectively, Chinese brands have nearly doubled their combined market share in Europe within twelve months—a pace that has inevitably drawn greater political and regulatory scrutiny.
Balance Sheet Concerns and Supplier Financing
Financial risks are adding to the pressure. BYD’s reported debt ratio stood at approximately 71% at the end of Q3 2025. However, this figure rises to nearly 96% when accounting for outstanding supplier credit liabilities of 223 billion yuan.
Furthermore, the company is gradually winding down its controversial “Dilian” financing model, under which it extended payment terms to suppliers to an average of 275 days. Unwinding this program is expected to strain the balance sheet, as liabilities must be settled more rapidly, thereby reducing the available liquidity buffer.
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Domestic Market Headwinds Intensify
Conditions in BYD’s home market are also deteriorating. S&P Global anticipates a contraction in China’s overall passenger vehicle market in 2026. This translates to diminished growth opportunities and increased incentive for BYD and its competitors to attract buyers through discounts and subsidies.
Several factors are amplifying the pressure:
* Key tax breaks and vehicle exchange subsidies are set to expire in January 2026.
* Price competition among domestic manufacturers is intensifying.
* Government subsidies for lower-priced electric vehicles are being scaled back.
In 2025, BYD’s plug-in hybrid sales, which constitute more than half of its total volume, decreased by 7.9%. In response, the automaker has announced plans to launch updated plug-in hybrid models with extended range this month to bolster appeal in this segment.
The Psychological Impact of a Major Exit
Adding a psychological weight to the stock is the complete divestment by Berkshire Hathaway. The renowned investment firm sold its remaining stake in BYD in September, concluding a highly successful 17-year investment. This move stands in stark contrast to the bullish stance of most analysts; 23 out of 28 tracked experts maintain “Buy” or “Outperform” ratings on the shares.
The discrepancy between this analyst consensus and Berkshire’s decision underscores the prevailing uncertainty regarding BYD’s future earnings quality.
Stock Performance and Valuation
Shares of BYD listed in Hong Kong closed today at HK$95.70, a daily gain of 1.22%. This price sits roughly 17% above its 52-week low of HK$81.80 but remains approximately 40% below the peak of HK$159.27 reached in May 2025.
With a price-to-earnings ratio of 19.83 and a market capitalization of HK$936.4 billion, the market is pricing in further growth while simultaneously reflecting doubts about BYD’s ability to stabilize margins in a more regulated and competitive landscape. The coming quarters will be critical in determining whether increased volumes, new models, and adjusted financing structures can successfully narrow the profitability gap with Tesla.
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