Drop in shares and sales: what’s happening with BYD and its electric cars

Seoul, South Korea — By almost every measure, Chinese automaker BYD looks underpowered. After a decade of struggling to gain a foothold in the automobile industry, BYD overtook Tesla to become the largest electric vehicle manufacturer in the world. The company’s sales are expanding rapidly in Europe and Latin America, and new and potentially lucrative markets, such as Canada, could soon open up to it.

But investors are cooling on BYD’s rise from a little-known battery maker to the top of the fastest-growing segment of the global auto industry.

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The company’s shares are down about 40% from their peak in May last year, making it one of the hardest hit in a broader sell-off in Chinese electric vehicle stocks that accelerated after the companies reported weak sales figures in January.

Intense competition is crushing profit margins, government subsidies are disappearing, and faster production cycles mean no one company can maintain leadership for long.

BYD is emblematic of how Chinese electric vehicle companies are becoming victims of their own success.

The domestic market, driven in part by government subsidies, has grown rapidly, but Chinese companies are “reaching the limit of the number of people for whom it makes sense to buy” an electric vehicle, said John Paul MacDuffie, a professor at the Wharton School of the University of Pennsylvania.

Sales are concentrated in large cities, where charging infrastructure is more developed, while owning an electric vehicle is simply not practical in much of the rest of the country.

Now, BYD and other automakers need to turn one-time buyers into repeat customers, building the kind of long-term brand relationships that more established automakers have always relied on.

“BYD has grown so fast that it is running out of new domestic customers,” MacDuffie said.

The challenges of the Chinese electric vehicle market began to appear last month. After growing 28% last year, BYD’s electric vehicle deliveries in January were down about 33% from the same period a year ago. Total sales of new electric vehicles fell almost 20%, according to the China Association of Automobile Manufacturers.

BYD did not respond to a request for comment. The company attributed the drop to weak domestic demand, according to a statement posted on WeChat.

The slowdown in growth coincides with the reduction of subsidies from the Chinese government. For years, Beijing has exempted the 10% tax on new car purchases. But this year, the tax was reintroduced at half the original rate. The expectation is that the full rate will come back into force after 2027.

Another factor is the constant flow of new competitors. By 2025, nearly 400 electric vehicle models were on sale in China, more than double the number in 2019, according to Jato, an automotive market research firm. More than 100 of these models have been released in the last two years.

Scott Kennedy, senior adviser at the Center for Strategic and International Studies, a think tank in Washington, said the industry is entering a period of war. For the industry to be sustainable in the long term, the number of automakers will have to shrink from hundreds to just a few, he said.

Fierce competition among automakers has pushed prices into a downward spiral known in China as “devolution,” in which companies keep cutting costs and adding features just to survive, even when it hurts everyone’s bottom line.

Automakers built giant factories and launched one new model after another, betting that volume would eventually offset falling profits.

The country is building a new kind of auto industry, said Tu Le, a transportation and technology analyst — an industry that looks less like Detroit and more like Silicon Valley.

Automotive cycles now resemble those of consumer electronics, with new models and feature changes released every year.

While Ford Motor’s F-series pickup truck has been the best-selling vehicle in the United States for 40 years, the top spot in China in recent years has been occupied by BYD, Geely or Tesla.

When preferences change so quickly, factories built for boom periods don’t reduce production as quickly, leaving idle capacity.

Mike Smitka, an automotive industry expert and professor emeritus at Washington and Lee University, estimated that 40% of China’s automotive production capacity was idle.

These idle factories further contributed to the excess of new models. Companies can hire existing factories to produce their cars rather than establishing their own units. Chinese telecommunications giant Huawei sells numerous electric vehicles but does not produce the cars itself.

Even under pressure, however, Chinese automakers pose a threat to American manufacturers, which are doubling down on gasoline-powered trucks and SUVs rather than continuing to invest in electric vehicles.

Ford and Stellantis posted multibillion-dollar losses after scaling back their electric vehicle plans this year. And even Tesla ceded its early advantage in electric vehicles to BYD last year.

Until now, 100% tariffs have kept Chinese electric vehicles out of the United States.

But, according to Le, it’s just a matter of time. The rest of the world has already begun the transition to electrification, but “the United States simply hasn’t gotten that message yet.”