Chinese automaker BYD, the country's leading EV manufacturer, reported its first quarterly profit decline in over three years during the second quarter, with profits dropping nearly 770 million euros (29.9%) compared to the previous year, despite a 23.3% revenue increase and a 13.8% profit rise in the first half of 2025.

The profit decline was driven by intense domestic price competition, a price war, and the impact of China's aggressive subsidy policies, which have been squeezing profit margins industry-wide.

In the second quarter, BYD's profits fell by about 30%, earning 6.4 billion yuan (approximately US$894.6 million), reflecting the broader challenges faced by Chinese automakers amid worsening market conditions.

The Chinese auto industry is experiencing significant oversupply, with manufacturers flooding international markets with low-cost vehicles, especially older internal combustion engine models exported to Russia, Central Asia, and the Middle East, to manage domestic oversupply.

This oversupply, driven by excessive production and subsidies, has led to declining profitability and economic strain, with Chinese automakers dumping vehicles into foreign markets to clear inventory.

The Chinese government is concerned about the aggressive price war and plans to implement stricter controls against dumping prices and false advertising, aiming to stabilize the market.

Intense domestic price competition among Chinese automakers like BYD, MG, and Great Wall has resulted in significantly lower prices within China compared to export markets, where tariffs make Chinese cars on average 108% more expensive in Europe.

Despite domestic challenges, overseas sales of Chinese EVs surged, with deliveries reaching 258,182 cars in the second quarter—up 144.7% year-on-year and 25.3% from the previous quarter—driven by affordable models attracting international consumers.

In China, sales of fully electric vehicles continued to grow strongly, even as hybrid vehicle sales declined compared to the previous year.

Vehicle sales in China have fallen for three consecutive months, with production declining for the first time in 17 months, prompting BYD to slow production and delay capacity expansions.

BYD's profits have declined due to falling sales, with July marking the third consecutive month of decreases, and the company is on track to miss its annual sales target of 5.5 million cars in China by more than one million units.

BYD's financial health is under pressure, with its working capital deficit widening to 122.7 billion yuan as of June 30, and its debt-to-asset ratio increasing to 71.1%, amid efforts to improve payment timelines to suppliers.