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A Sharp Profit Decline Hits Investor Confidence

Shares of BYD, China’s biggest electric vehicle manufacturer and a key rival to Tesla, fell nearly 8% in Hong Kong trading on Monday after the company reported a steep decline in second-quarter profits. Net earnings for the June quarter dropped to 6.36 billion yuan ($891 million), marking a 30% year-on-year decline, according to LSEG data.

The sell-off reflects growing investor concerns that an intensifying price war in China’s EV industry is eroding profitability, even for market leaders.

Revenue Growth Overshadowed by Price Pressures

Despite the profit decline, BYD posted strong top-line growth. Revenue for the quarter rose 14% year over year to 201 billion yuan ($28.2 billion), supported by robust overseas sales. The company has been rapidly expanding its footprint in Europe, Southeast Asia, and Latin America, where demand for affordable EVs continues to rise.

Still, the surge in global sales has not been enough to offset the aggressive discounting and marketing costs in China, its largest market.

The Impact of China’s EV Price War

In its filing, BYD highlighted that “increased price competition and excessive marketing” have placed significant pressure on industry margins. The company’s warning underscores how China’s crowded EV sector—home to hundreds of manufacturers—is undergoing a brutal shakeout.

According to a recent Nomura report, the average retail price of cars in China has dropped nearly 19% over the past two years, falling to about 165,000 yuan ($22,900). This trend has been accelerated by price cuts from major players, including Tesla, which triggered a wave of discounts across the sector.

BYD’s Position in the Global Market

While facing stiff challenges at home, BYD has strengthened its global presence. It has overtaken Tesla in several markets as the world’s best-selling EV brand by volume and continues to launch new models aimed at both budget-conscious buyers and premium customers.

The company sold over 3 million vehicles globally in 2023, with international sales accounting for a growing share of its revenue. Analysts say that BYD’s overseas push could help cushion the impact of domestic price wars, but warn that margins may remain under pressure in the short term.

Investor Outlook

For investors, BYD’s latest results highlight a central dilemma: strong growth in sales and revenue, but declining profitability due to relentless competition in its home market. While the stock remains one of the most closely watched in the global EV sector, Monday’s sell-off shows how quickly sentiment can shift when earnings disappoint.

Going forward, BYD’s ability to balance domestic challenges with its international expansion strategy will be critical in determining whether it can sustain both growth and profitability in an increasingly competitive global EV industry.

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