BYD: Once the King of Competition, Now Being Outcompeted, Can the King of BYD Successfully Break the Deadlock?

$BYD COMPANY(01211.HK) released its third-quarter 2025 earnings after the Hong Kong stock market closed on the evening of October 30, Beijing time. Key points are as follows:

1. Revenue slightly below expectations, mainly due to a decline in car selling prices quarter-on-quarter: In the third quarter, BYD was constrained by anti-involution policies limiting price wars, leading to a partial recovery of discounts from the second quarter. The market expected BYD's car selling prices to start rising quarter-on-quarter, but the decline in the proportion of higher-priced premium models (Yangwang, Denza, Fangchengbao) and export models in BYD's sales structure somewhat dragged down the selling price.

Car sales revenue was below expectations due to the quarter-on-quarter decline in selling prices, and BYD Electronics revenue also showed a downward trend this quarter. The total revenue was 195 billion, slightly below the market expectation of 199.5 billion, and down 3% year-on-year.

2. Car gross margin has rebounded: Fortunately, the car gross margin finally emerged from the trough of the previous quarter, rising 1.9 percentage points quarter-on-quarter to 20.6% this quarter. Dolphin Research believes this is mainly due to BYD's capital expenditure pace slowing this quarter, with fixed assets also declining quarter-on-quarter, controlling overall depreciation, and possibly some cost reductions in the supply chain.

3. Net profit per vehicle has finally emerged from the trough, mainly due to the reduction in three expenses: The actual net profit per vehicle this quarter was 6,200 yuan, slightly below the market expectation of 6,500 yuan, but up 1,600 yuan from the lowest point of 4,900 yuan last quarter, mainly due to the quarter-on-quarter increase in gross margin and significant reduction in three expenses.

BYD's core three expenses fell by nearly 2 billion quarter-on-quarter, with the massive R&D expenses finally showing a narrowing trend (down 1.2 billion quarter-on-quarter to 14.2 billion), and management expenses were also controlled (down 600 million quarter-on-quarter). Finally, the net profit attributable to the parent company also rebounded 1.44 billion quarter-on-quarter to 7.8 billion.

4. Core profit margin has also warmed up: BYD's core operating profit per vehicle has finally rebounded from the lowest point of 2,500 yuan last quarter to 5,700 yuan this quarter, basically flat with the first quarter. The main reason for the quarter-on-quarter rebound is still the increase in car gross margin and the significant reduction in three expenses. The core operating profit margin also rose from 1.4% last quarter to 3.2% this quarter.

Dolphin Research's View:

Overall, since BYD's car sales in the third quarter were still declining quarter-on-quarter, the market's expectations for BYD's financial report were not high. Although BYD's financial report performance was slightly below market expectations, from BYD's perspective, the car gross margin and net profit per vehicle both rebounded quarter-on-quarter in the third quarter, indicating that BYD has indeed emerged from the operational bottom of the second quarter.

Under the constraints of large-scale price wars due to anti-involution policies, BYD's sales and market share both declined in the third quarter. BYD also took some measures to cope with competition from rivals:

① For plug-in hybrid models:

In August, BYD upgraded its DM5.0 technology, reducing the fuel consumption per 100 kilometers from 2.9L to 2.6L. However, similarly, Geely released its Thor Electric Hybrid 2.0 technology in June 2025, reducing fuel consumption per 100 kilometers from 2.9L to 2.67L, and other plug-in hybrid players also released Chery C-DM 6.0 technology, indicating that BYD's plug-in hybrid technology still cannot create a technological gap.

Therefore, in September, BYD launched several upgraded models (BYD Tang DMI, Qin PLUS, Seal 07, Song Pro, etc.), mainly upgrading battery capacity and range for plug-in hybrid models, achieving more without increasing prices. For example, Qin Plus's pure electric range is 128km, compared to the 55km pure electric range launched in February, doubling the range. This is partly to meet the requirements of halving the new energy purchase tax and partly to defend the plug-in hybrid base gradually being eroded by competitors.

For the Fangchengbao brand, originally positioned as high-end off-road, due to difficulties in breaking through high-end, BYD also launched mid-to-low-priced models Titanium 3 and Titanium 7 targeting the 100,000-200,000 yuan market, capturing the affordable off-road market. Currently, the sales and order volume of these two models are quite good.

② For pure electric models:

Although BYD launched the Super E platform in March this year, equipped with a new generation of ultra-fast charging batteries, high-performance motors, and SIC chips (supporting 1500V high voltage and working at 200°C high temperature), capable of achieving 400km range with 5 minutes of charging, this technology is currently only applied to high-end models like Han L and Tang L priced above 200,000 yuan, and the construction of BYD's supercharging stations is still gradually underway, failing to maintain the market share of pure electric vehicles.

Subsequently, BYD plans to reduce the cost of the "Super E platform" to apply this technology to low-priced pure electric models (models priced below 150,000 yuan) and accelerate the construction of supercharging stations to effectively defend the pure electric base.

Dolphin Research expects that the fourth quarter's rush-buying effect brought by the decline in purchase tax, coupled with BYD's upgrades to plug-in hybrid models starting at the end of September, will lead to a 29% quarter-on-quarter increase in sales in the fourth quarter to 1.44 million units, reaching the 2025 annual sales expectation of 4.7 million units. Car gross margin and net profit per vehicle may continue to show a marginal upward trend due to the release of scale effects.

From BYD's stock price perspective, it has retreated 30% from the high point in May 2025. The core reason is still that BYD's "Intelligent Driving Equality" new product cycle in 2025 did not meet expectations, and it was also constrained by anti-involution policies, unable to adopt large-scale price wars to effectively defend market share. According to Reuters, BYD also lowered its initial annual target from 5.5 million to 4.6 million.

Under Dolphin Research's expectation of 4.7 million sales in 2025, BYD's 2025 P/E ratio is still 25 times, which is not cheap, especially considering Dolphin Research's expectation of a 10% year-on-year decline in net profit in 2025.

From BYD's historical sales trajectory, the upward trend in sales is highly dependent on the strategy of each product cycle (such as the technological gap formed by plug-in hybrid DM technology). However, BYD's overall model cycle strategy for 2026 is still unclear, and 2026 also faces the negative impact of purchase tax decline on the demand side. Without seeing a clear upward catalyst, Dolphin Research remains relatively cautious about investing in BYD.

PS: BYD is a company with a complex business structure, covering automotive, mobile phone components and assembly, secondary rechargeable batteries, and photovoltaics. However, Dolphin Research's in-depth articles on BYD completed in July last year, "BYD: The Best Battery Manufacturer in the Automotive Industry" and "BYD: After the Surge, Seeking Stability in Wealth" have already identified the core. Despite having many diverse businesses, the core focus is still on the automotive business. For those who need to understand this company, you can first review our above two analyses.

Below is a detailed analysis:

I. Car Gross Margin Has Warmed Up

Every time earnings are released, the market remains most concerned about BYD's automotive business gross margin situation.

In the third quarter, since car sales were already clear, BYD, in response to "anti-involution" policies, partially recovered large promotional discounts from the second quarter and implemented an inventory reduction strategy. As a result, third-quarter car sales actually declined 2.7 percentage points quarter-on-quarter to 1.145 million units compared to the second quarter.

From BYD's gross margin this quarter, due to the partial recovery of car discounts in the third quarter, the market expected car selling prices and car gross margins to show a quarter-on-quarter upward trend.

The actual car gross margin in the third quarter was 20.6%, up 1.9 percentage points quarter-on-quarter from the trough of 18.7% last quarter, but still below the market expectation of 21.1%. The selling price per vehicle this quarter was still declining quarter-on-quarter, with the gross margin improvement mainly due to the reduction in unit costs.

From the perspective of unit economics,

1) Unit Price: Decline in the proportion of exports and premium models dragged down the selling price

The unit price continued to decline 600 yuan quarter-on-quarter to 136,700 yuan in the third quarter. Although BYD was constrained by anti-involution policies, partially recovering large promotional discounts from the second quarter (see "BYD: Bloodbath in New Energy, "Price Butcher" Strikes Again!").

However, the proportion of higher-priced export and premium models in the sales structure declined this quarter, with export and premium models (Denza + Yangwang + Fangchengbao excluding low-priced Titanium 3) declining 1.1 percentage points quarter-on-quarter to 26.9%, dragging down the selling price.

2) Unit Cost: Decline in unit cost drove the rebound in car gross margin

The unit cost in the second quarter was 108,500 yuan, down 3,000 yuan quarter-on-quarter, driving the quarter-on-quarter rebound in gross margin this quarter.

Dolphin Research believes the reasons for the decline in unit cost this quarter mainly include:

① BYD's capital expenditure pace slowed this quarter, with fixed assets also declining quarter-on-quarter, leading to a possible decline in overall depreciation in the third quarter;

② There may also be some cost reductions in the upstream supply chain;

3) Unit Gross Profit: Unit gross profit rebounded 2,000 yuan quarter-on-quarter

The unit gross profit this quarter was 28,000 yuan, rebounding 2,000 yuan quarter-on-quarter from the previous quarter, with the car gross margin also rebounding 1.9 percentage points quarter-on-quarter from 18.7% last quarter to 20.6% this quarter.

2. Net profit per vehicle is also rising due to a significant reduction in three expenses

The net profit attributable to the parent company rebounded 1.44 billion quarter-on-quarter to 7.8 billion this quarter, mainly due to BYD's core three expenses falling by nearly 2 billion quarter-on-quarter, with the massive R&D expenses finally showing a narrowing trend, and management expenses also shrinking.

The actual net profit per vehicle this quarter was 6,200 yuan, slightly below the market expectation of 6,500 yuan, but up 1,600 yuan from the lowest point of 4,900 yuan last quarter, mainly due to the quarter-on-quarter increase in gross margin and reduction in three expenses.

Specifically:

1) R&D Expenses: Finally starting to show restraint

BYD's R&D expenses in the second quarter were 14.15 billion, down 1.22 billion quarter-on-quarter, also below the market expectation of 15.34 billion. The massive R&D expenses finally showed restraint.

In electrification, BYD announced in August that its fifth-generation DM technology evolved again, significantly reducing NEDC fuel consumption per 100 kilometers by 10% to 2.6L.

In intelligence, intelligence has always been a clear shortcoming for BYD, and BYD has invested heavily in R&D, fully betting on the second half of intelligence to prepare for the next major new product cycle.

BYD currently collaborates with intelligent driving hardware suppliers including NVIDIA, Horizon Robotics, Texas Instruments, Huawei, etc., with a dual focus on supply chain solutions and self-research solutions. However, the strategic direction is mainly towards self-research (self-research intelligent driving chips + algorithms), continuously increasing bets on the second half of intelligence, while striving to enhance technical autonomy and cost control capabilities.

2) Sales Expenses: Sales expenses were 6.1 billion, with some recovery of dealer rebates

Sales expenses in the third quarter were 6.1 billion, below the market expectation of 6.7 billion, down 130 million quarter-on-quarter. Since BYD's mid-to-low-end models mostly adopt a dealership model, BYD still had rebates to dealers in the second quarter (666 yuan per vehicle), and the rebate policy was canceled in the third quarter, leading to a quarter-on-quarter decline in sales expenses this quarter.

3) Management Expenses: Down 600 million quarter-on-quarter

Management expenses this quarter were 4.88 billion, significantly below the market expectation of 5.45 billion, also showing a narrowing trend.

Looking at BYD's core profit per vehicle (core operating profit = total gross profit - three expenses), BYD's core operating profit per vehicle finally rebounded from the lowest point of 2,500 yuan last quarter to 5,700 yuan this quarter, basically flat with the first quarter. The main reason for the quarter-on-quarter rebound is still the increase in car gross margin and significant reduction in three expenses. The core operating profit margin also rose from 1.4% last quarter to 3.2% this quarter.

3. BYD's market share is still on a downward trajectory

From the quarterly tracking of BYD's market share performance, BYD's overall car sales market share has been declining since reaching a peak of 36% in the second quarter of 2024. In the third quarter of this year, the market share has already declined 3.6 percentage points quarter-on-quarter to 27.4%.

Specifically:

1) The technological gap in plug-in hybrid technology has been caught up, and market share is still on a downward trajectory under the constraints of price wars:

Although BYD's DM 5.0 technology was slightly upgraded in August, reducing fuel consumption per 100 kilometers from 2.9L to 2.6L, similarly, Geely released its Thor Electric Hybrid 2.0 technology in June 2025, reducing fuel consumption per 100 kilometers from 2.9L to 2.67L, and other plug-in hybrid players also released Chery C-DM 6.0 technology, indicating that BYD's leading advantage in plug-in hybrid technology has been basically caught up.

Similarly, BYD's pricing strategy is still constrained by "anti-involution" restrictions, unable to initiate large-scale industry price wars, especially when intelligent driving models are not meeting expectations. Market share is being gradually eroded by other players in the 100,000-200,000 yuan mass market, such as Leapmotor, Geely, Great Wall, Changan, Chery, etc., and is still on a downward trajectory.

However, BYD launched larger battery and longer-range versions of plug-in hybrid models in September, achieving more without increasing prices (such as the Qin Plus 128km pure electric range model launched in September, compared to the 55km pure electric range launched in February, showing improvement. This is partly to meet the requirements of halving the new energy purchase tax and partly to defend the plug-in hybrid base gradually being eroded by competitors.

2) Sales and market share of pure electric models are both declining quarter-on-quarter:

In terms of pure electric models, although BYD launched the Super E platform in March this year, equipped with a new generation of ultra-fast charging batteries, high-performance motors, and SIC chips (supporting 1500V high voltage and working at 200°C high temperature), capable of achieving 400km range with 5 minutes of charging, this technology is currently only applied to high-end models like Han L and Tang L priced above 200,000 yuan, and the construction of BYD's supercharging stations is still gradually underway, failing to maintain the market share of pure electric vehicles.

In the third quarter, BYD's pure electric model sales declined 4% quarter-on-quarter to 580,000 units, and the pure electric market share also declined 3.6 percentage points to 22.7%.

However, BYD plans to reduce the cost of the "Super E platform" and has established a SIC factory in Hefei, capable of reducing SIC costs by 30%-50% and supporting 1 million vehicles, allowing this technology to be applied to low-priced pure electric models (models priced below 150,000 yuan), thereby effectively defending the pure electric base.

4. BYD's inventory reduction is basically complete, and inventory levels have returned to reasonable levels

From BYD's own inventory levels this quarter, inventory reduction has been underway since the second quarter, with inventory turnover days falling from the first quarter's inventory peak of 90 days to 79 days in the third quarter, at a reasonable level.

At the same time, from the changes in BYD's dealer inventory, BYD has been reducing production and inventory since June, implementing a "circuit breaker" mechanism, streamlining SKUs, accelerating rebates, etc. Currently, BYD's dealer inventory depth has also returned to reasonable levels.

5. Exports declined quarter-on-quarter in the third quarter, but the overall upward trend remains unchanged

BYD has always been expected by the market in two directions: high-end and exports. Breaking through high-end remains difficult, requiring a three-pronged effort in intelligence, brand strength, and marketing. Although BYD has been working hard on high-end for a long time, the current effect is still relatively average. BYD is also launching 100,000-200,000 yuan affordable versions of models like Titanium 3 and Titanium 7 under the Fangchengbao brand, originally positioned as high-end.

This year, BYD's export trend still performed well, although there was a slight decline quarter-on-quarter in the third quarter, the overall upward trend remains unchanged, and it is also a key direction for BYD's efforts, especially in the competitive environment of China's new energy vehicles approaching a red ocean. Overseas models are expected to achieve a net profit per vehicle of 14,000-16,000 yuan, far higher than the domestic 4,000-6,000 yuan, providing a higher gross margin and net profit safety cushion.

In the first three quarters of 2025, BYD's export sales were 686,000 units, up 130% year-on-year, and it is expected that BYD can achieve the initial annual target of 900,000-1 million overseas sales in 2025.

Although BYD's capital expenditure this quarter has declined, compared to the capital expenditure of over 20 billion in 2024, it is still significantly rising. BYD's construction of factories this quarter also rose 13.2 billion quarter-on-quarter to 48.8 billion, combined with BYD's domestic production reduction and previous issuance behavior, it is expected to still be investing in overseas capacity, especially after the decline in purchase tax in 2026, domestic demand still faces significant uncertainty, while overseas contributions to BYD's 2026 sales and profits are more important.