BYD Faces Maturity Crisis in China with Sales Decline and Technological Shift

BYD is experiencing a strategic slowdown in China, with sales falling 14.3% in August for the fourth consecutive month. The company is reducing production rates and scaling back its expansion plans. PHEV sales have been declining since April, while EV sales have been rising, signaling a shift towards electric vehicles. BYD's sales in Europe have exceeded Tesla's for the first time, but the focus remains on China, where the market is under pressure.

BYD, a leading Chinese electric vehicle (EV) manufacturer, has been experiencing a strategic slowdown in its domestic market. According to recent reports, BYD's sales in China fell by 14.3% in August, marking the fourth consecutive month of decline [1]. This slowdown is attributed to intense competition, aggressive price wars, and regulatory pressures in the hyper-competitive EV market.

The company's quarterly profit dropped by about 30% year-on-year, despite a significant increase in overseas sales [2]. This profit decline can be linked to margin compression from aggressive price cuts and regulatory pressures. BYD's gross profit margin in the second quarter of 2025 was 16.3%, the lowest level since Q3 2022, indicating the challenges faced by the company in maintaining profitability [2].

In response to these challenges, BYD has decided to reduce production rates and scale back its expansion plans. The company's debt-to-asset ratio reached 71.1% in Q2 2025, and a working capital deficit expanded to 122.7 billion yuan. To mitigate these risks, BYD plans to reduce excess inventory by 20–30% by Q3 2025 and localize production in Hungary, Thailand, and Mexico [3].

While BYD's sales in China are under pressure, the company has seen a significant increase in its European market share. In July 2025, BYD registered 13,503 new vehicles in Europe, marking a 225% year-on-year growth and overtaking Tesla, which saw registrations plummet by 40% [4]. This growth is attributed to BYD's competitive pricing, modern features, and a growing dealership network in Europe.

Despite the challenges in China, analysts remain confident about BYD's overseas business. The company's Q2 overseas wholesale volumes more than doubled year-on-year, indicating strong demand for its products in international markets [2]. This strong overseas performance positions BYD for continued growth in the coming years.

In conclusion, BYD is facing significant challenges in its domestic market due to intense competition and regulatory pressures. However, the company's strong performance in Europe and its robust overseas business provide a glimmer of hope for future growth. BYD's strategic slowdown in China is a reminder of the intense competition and regulatory pressures in the EV market, but the company's ability to adapt and pivot its business model suggests that it is well-positioned to navigate these challenges.

References:
[1] https://www.cnbc.com/2025/09/01/byd-hong-kong-shares-fall-nearly-8percent-after-quarterly-profit-drop.html
[2] https://www.ainvest.com/news/byd-shares-plummet-weaker-expected-earnings-narrowing-profit-margin-2509/
[3] https://www.investors.com/news/tesla-rivals-xpeng-xiaomi-nio-byd-li-auto-china-ev-sales/
[4] https://evmagazine.com/news/byd-beats-tesla-as-top-selling-ev-brand-in-europe