BYD's New Challenges After Overtaking Tesla In Unit Sales

Core Viewpoint - BYD has overtaken Tesla in unit sales of electric vehicles (EVs), but faces significant challenges regarding profitability, overseas expansion risks, and a controversial financing model that may impact shareholder value [1][4]. Sales Performance - BYD sold 2.26 million EVs globally in 2025, marking a 145% year-on-year growth abroad, while Tesla's deliveries fell 8.6% to 1.6 million, the largest annual drop in its history [5][6]. - In China, Tesla's sales declined by over 5% to around 620,000 vehicles, marking its first decline since 2020 [6]. Profitability Challenges - Despite high sales volumes, BYD's net profit fell by 32.6% to 7.8 billion yuan ($1.1 billion) in the last year's third quarter, with revenue also declining for the first time in over five years to 195 billion yuan [10]. - BYD's gross margin was reported at 17.9%, comparable to Tesla's 18%, but per-vehicle profit dropped to 4,800 yuan, significantly lower than Tesla's approximately $6,000 per vehicle [11]. Competitive Landscape - The competitive environment in China is intense, with many companies struggling to maintain profitability due to thin margins and increased vehicle purchase taxes [12]. - Analysts predict a slowdown in China's EV market, with car sales expected to decline in 2026, further pressuring BYD's margins [13]. Expansion and Localization Efforts - BYD is attempting to localize production in Southeast Asia, Latin America, and Europe to mitigate tariffs and improve delivery times, but faces regulatory scrutiny in these regions [14]. - The company is also dismantling a controversial supply chain financing scheme that had ballooned to over 400 billion yuan ($57.3 billion) in debt, which could increase its debt ratio significantly [15][16][18]. Market Perception - Despite the challenges, the investment community largely views BYD as undervalued, with 23 out of 28 analysts recommending a "buy" or "outperform" rating [19]. - Notably, billionaire investor Charlie Munger previously praised BYD's position in China but Berkshire Hathaway has since disposed of its stake, which may indicate a lack of confidence [20].