This news has come as a real shock to auto industry enthusiasts. China’s well-known electric car manufacturer BYD, which not long ago overtook Tesla in sales, is now facing its first major financial setback. The company has reported a sudden 30% drop in profits, its first big decline in more than three years. This loss has not only worried investors but also pushed its Hong Kong-listed shares down by nearly 8%.

Where did BYD’s troubles begin?

The root of the problem is China’s ongoing price war in the auto market. Over the past two years, the average price of vehicles has dropped by around 19%, with new cars now costing roughly $22,900. Continuous discounts and promotions aimed at boosting sales have badly dented profits, and BYD is no exception.

Production and debt issues

The company has also been forced to slow down its production because its debt burden has grown heavier. The working capital deficit, which stood at 95.8 billion yuan in March, jumped to 122.7 billion yuan by June. The debt-to-asset ratio has already exceeded 71%, forcing BYD to halt expansion plans for its Chinese factories.

Sales target under pressure

BYD had set an ambitious goal of selling 5.5 million cars by 2025, but by the end of July, only 2.49 million units had been sold. Experts now believe the company will likely end up closer to 5 million, falling short of its original target.

Europe: a new hope

Despite the struggles in China, Europe has emerged as a fresh opportunity for BYD. In June alone, the company sold 13,000 units in Europe, a massive 225% increase compared to last year. Thanks to this international push, BYD’s total revenue has grown 14%, reaching 200.9 billion yuan, even though profits have shrunk.

Government intervention

The Chinese government has also stepped in. Back in May, Beijing made it clear that it doesn’t want further price cuts in the EV sector. A new rule has been introduced requiring all automakers to pay their suppliers within 60 days, to improve liquidity across the industry.

Conclusion

The reality is that BYD is still the world’s largest electric carmaker. However, the sharp drop in profit marks a turning point. If the price war in China continues, it could endanger the profitability of the entire EV sector. Europe’s growing demand provides a glimmer of hope, but BYD’s real test will be surviving the domestic pressure without losing its competitive edge.