Key takeaways:



<ul>
<li>Beijing's decision to scrap or lower export tax rebates for solar and battery makers is likely a move to boost government revenue and force industry consolidation</li>



<li>BYD has surpassed Tesla in unit sales volume but faces scrutiny over high debt ratios disguised by complex financial instruments</li>
</ul>



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Image Credit: Bamboo Works



In the fast-moving world of China's new energy sector, two major narratives have collided this month: a significant pullback in state support for some exporters and a changing of the guard at the top of the global sales charts for new energy vehicles (NEVs). On the policy front, Beijing has announced major tweaks to its value-added tax refunds for exports, specifically targeting solar products and electric vehicle (EV) batteries. Simultaneously, domestic giant BYD (OTC:BYDDF) (OTC:BYDDY) (1211.HK) has officially overtaken Tesla (NASDAQ:TSLA) to become the world's top NEV seller. Both stories signal maturing markets where government guardrails are shifting, and financial transparency is becoming paramount.



We begin with the policy reversal, which has dominated headlines. China has completely scrapped export tax rebates for solar energy products and lowered the rate for EV batteries to 6% from the previous 9%. The State Council cited a desire to &#34;restore rational pricing&#34; and reduce trade frictions. However, we believe one must read between the lines when decoding government communication.



Historically, China has not been particularly concerned with the impact of its manufacturers on foreign markets, where cheap prices have often eliminated competition in sectors ranging from solar panels to EVs. We suspect the primary motivation here is domestic. The Chinese government is seeking to boost tax revenues — or at least reduce expenses — by cutting off incentives that are no longer necessary. With Chinese companies manufacturing roughly 80% of the world's solar panels, the industry is robust enough to survive without this specific lifeline.



Furthermore, this move appears to be an effort to end the &#34;irrational price competition&#34; that has plagued the sector. For months, manufacturers have engaged in cutthroat price wars, often selling products at a loss. By removing these rebates, Beijing may be forcing companies to raise prices and return to profitability, thereby stabilizing employment and tax revenue. While this might conveniently address some complaints from Europe and the U.S. regarding unfair competition, we remain skeptical that it will fully appease Western governments, as other local and provincial subsidies still likely remain in place.



<h4>A volume victory with accounting caveats</h4>



Turning to the corporate battlefield, BYD reached a historic milestone in 2025, selling 2.26 million NEVs to beat Tesla's 1.6 million. This victory was driven by a staggering 145% growth in overseas sales for BYD, while Tesla saw an 8.6% overall sales decline. However, we think investors should look past the headline numbers to understand the nuance of this achievement.



BYD's success is built squarely on the lower end of the market, offering price points — such as $8,000 vehicles — that Western competitors can't match due to production costs. This is a different business strategy compared to Tesla's focus on the mid- to upper-end of the market. But of greater concern to us is the financial engineering underpinning BYD's rise.



While the company reports being profitable, it has relied on an internal &#34;IOU system&#34; to delay payments to suppliers, sometimes for up to eight or nine months. If these financial instruments are factored in, BYD's debt ratio balloons to nearly 100%, significantly higher than the reported 71%. We note that Warren Buffett's Berkshire Hathaway, a long-time backer, sold its remaining stake last year. Given Buffett's penchant for scrutinizing financial filings, his exit suggests he may have spotted these risks early.



It is telling that the Chinese government has ordered BYD to dismantle this IOU system, granting it a two-year window to clean up the mess — a timeline that suggests fears of what a sudden correction might trigger. This brings us back to the core concern: when companies create their own financial instruments to manage their balance sheets too aggressively, it destroys investor trust.



History offers grim precedents, from Enron and Wirecard to the more recent collapse of Evergrande. In all these cases, the initial lack of transparency was a precursor to deeper structural failures. If BYD is indeed hiding the true state of its financial health behind these payment delays, the risk to investors is substantial. For those who do not have an appetite for such uncertainty, we believe the prudent move is to stay away and wait to see how this accounting drama plays out.



Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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China has scrapped export tax rebates for solar products and reduced them for EV batteries, aiming to boost tax revenue and stabilize pricing. Meanwhile, BYD has overtaken Tesla as the world's top NEV seller, with significant growth in overseas sales. However, concerns arise over BYD's high debt ratios, masked by complex financial instruments, prompting scrutiny from investors. The Chinese government has ordered BYD to dismantle its internal payment system, raising fears of potential financial instability. Investors are advised to be cautious amid these developments.

- China's recent decision to eliminate export tax rebates for solar products and reduce those for EV batteries aims to boost government revenue and stabilize pricing in a maturing energy market.  
- BYD has overtaken Tesla in NEV sales with 2.26 million units sold, driven by lower-price vehicles, although its financial practices raise concerns about high debt levels masked by deferred payments.  
- The government has mandated BYD to address these financial practices, highlighting the importance of transparency to maintain investor trust amidst fears of potential corrections in the market.

China Prunes Export Incentives, As BYD Takes Global NEV Crown