BYD goes backwards: who to bet on in the Chinese electric car market now

BYD, China's largest automaker, has cut its sales target for this year by 16% and now plans to sell 4.6 million vehicles, Reuters reported on Sept. 4, citing two sources. This is the slowest pace in five years and "there are other signs that BYD's era of record growth may be coming to an end," the agency wrote.

Before that, on August 29, the company reported a 30% drop in second-quarter net profit to ¥6.4 billion and a 14.5% rise in revenue to ¥200.9 billion. Its quarterly profit fell for the first time in 3.5 years.

BYD has also been facing a drop in sales in recent months. The company generates almost 80% of its revenue in China. And August was the fourth month in a row when it recorded a drop in car sales in the domestic market.

The main reason for the slowdown is the actions of the Chinese authorities, who have demanded an end to price wars in the domestic market. In addition, they insist that automakers settle accounts with suppliers more quickly. In the spring of 2024, Bloomberg compiled data that showed BYD took 275 days to settle with them in 2023, but now it must do so within 60 days. This has already caused the company's working capital deficit to widen to 122.7 billion yuan as of June 30 from 95.8 billion yuan at the end of March.

Does this mean that China's "electric car miracle" is coming to an end?

Sales of electric cars and hybrids have accounted for more than half of all new vehicles in China for months on end. But in August they increased at the slowest pace in a year and a half - they added only 7.5% in annualized terms compared to 12% in July, Reuters wrote , citing data from the China Passenger Car Association.

Competition in the PRC market is impressive. According to estimates by international consulting firm AlixPartners, cited by The New York Times, 129 brands producing fully or partially electric cars were present in China last year, but only 15 of them are projected to remain financially sustainable by 2030. By comparison, seven years ago, in 2018, there were 486 electric car manufacturers registered in the country. Even then, experts were already calling it a bubble.

BYD retains the largest market share in China. But dozens of companies are fighting for the attention of buyers - many are forced to reduce prices to a level at which profits become minimal. According to Reuters, the average price of a car in China this year will fall to $24 thousand, this is 21% below the level of 2021. At the same time, manufacturers continue to build new plants at the expense of loans from state banks. Although last year in China with sales of 27.6 million cars, the capacity amounted to 55.6 million.

Excessive production forces local companies to seek access to foreign markets. About 20% of output is exported, but many countries, including the EU, protect themselves from the influx of Chinese cars with high duties.

Things are not so pessimistic for BYD's major competitors. August 2025, for example, was the best month for sales of electric cars and hybrids for Geely, Xpeng and NIO. Geely's sales in this segment jumped 95.2%.

- Xpeng posted a loss per share of 0.2 yuan in the second quarter (consensus was 0.83 yuan). Revenue rose 126% to RMB 18.3 billion, slightly below market expectations (RMB 18.5 billion). The launch of the budget MONA M03 model helped the company more than triple year-on-year shipments. Its share of Xpeng's sales has reached about 40%. And the recent expansion of its agreement with Volkswagen to co-develop architecture for hybrids and combustion engine cars in China promises the company a significant revenue stream from high margin software.

- NIO also reported better-than-expected earnings on September 2, with adjusted loss per share falling from RMB 2.21 to RMB 1.85 (against a market forecast of RMB 2.25). Revenue increased from 17.5 billion to 19 billion yuan.

- Xiaomi announced in its second-quarter report on August 19 that its earnings per share rose from 0.2 yuan to 0.45 yuan year-on-year, against the market's forecast of 0.36 yuan. Although its revenue came in 1.1% below expectations at ¥116 billion, adjusted net profit reached ¥10.8 billion - jumping 75% year-on-year. This is the largest quarterly result in the company's history. The main growth drivers were the AI and electric vehicle segments, which significantly exceeded analysts' forecasts.

- Li Auto reported a decline in earnings per share for the second quarter from 1.42 yuan to 1.37 yuan, against market expectations of 0.98 yuan. Revenue fell 4.5% year-on-year to 30.2 billion yuan, while the market expected a rise to 33 billion yuan. The company sold about 111,000 vehicles in the second quarter, up 2.3% from a year earlier.

JPMorgan analysts call 2026 a "strategic turning point" for the company: its four factories outside China will be fully operational, and sites in Thailand, Indonesia, Hungary, Brazil and Turkey will reach full capacity. The bank predicts that the share of overseas business in BYD's profits will rise from 40% in 2025 to about 50% in the years ahead. Overseas, the Chinese giant will compete on product, not low price, and will actively exploit the potential of hybrid cars, the bank said in a note. JPMorgan cut its target price on BYD shares from HK$160 to HK$150 on Aug. 30, but maintained a "buy" recommendation. The potential is 41.6 percent of the closing price on Sept. 9.

Jefferies, on the other hand, completely changed its view on the company: it worsened its recommendation from "buy" to "sell" and lowered its target price from HK$447 to HK$92, down 13.1% from the closing price on Aug. 9. Jefferies believes that demands from Chinese authorities to abandon price wars will reduce BYD's upside. "BYD's profits, fueled by scale, cost cutting and technology leadership, have 'lost speed'. Until it gains momentum, underperformance will continue," they wrote.

According to Bloomberg, of the five largest Chinese producers, XPeng has the highest upside potential for the stock, 33.4 percent from the closing price on Sept. 9. Out of 40 analysts, 36 recommend buying its securities and four recommend holding.

- Then comes BYD - the average target price of its securities assumes growth of 30% from the closing price on September 9. 42 out of 45 analysts assigned a "buy" rating, two - "sell" and one - "hold".

- Xiaomi stock has a potential upside of 18% to its Sept. 9 closing price and 49 "buy" recommendations out of 54.

- Li Auto shares may be up 18.6 percent from the closing price on Sept. 9, but only 22 of 34 analysts recommend buying its securities, 10 have a "hold" recommendation and two have a "sell" recommendation.

- Though 17 out of 32 analysts recommend to buy NIO shares, their average target price suggests a 3.2% decrease from the closing price on September 9. That is, according to analysts, the value of securities has already reached a fair level. Quotes have grown by 83% since the beginning of July.

Nevertheless, JPMorgan highlighted NIO in its August 26 report - even before the report was released, the bank upgraded its rating on the stock from "neutral" to "above market" and raised its target price from $4.8 to $8, up 27.4% from its September 9 closing price. The bank included NIO shares in its Positive Catalyst Watch - a list of companies that will grow in the near future due to certain events.

Analysts forecast the number of NIO car deliveries to grow by 50% in 2025 and 47% in 2026. JPMorgan believes the main catalyst for growth will be the full-fledged launch of the ES8 crossover model. The price for it will be announced at the NIO Day event on September 20, according to the bank, it will be lower than expected, which will boost sales. Also analysts write that in November at the Guangzhou Motor Show NIO may present a new 5-seat electric SUV Onvo L80, a more mass model in the price segment of 230-240 thousand yuan.

On August 22, HSBC wrote that XPeng is embarking on a powerful new product cycle. Already in August, it released the updated P7 model, in the fourth quarter it should have versions of electric cars with longer range, and in 2026 - the launch of the MONA brand models. This should be a catalyst for increased sales and higher quotations. Additionally, the bank calls the expansion of cooperation with Volkswagen an important driver. The bank maintained its "buy" recommendation and raised its target price on XPeng shares from $27.4 to $29.6, up 42.6% from the closing price on September 9.

Deutsche Bank reiterated a "buy" rating and a HK$143 target price on shares of Li Auto in a report on September 1. The growth potential is 50.4% to the closing price on September 9. The reason for the decline in the company's financial performance analysts Deutsche Bank see in the price war and redistribution of resources: the focus of dealers shifted from the hybrid line Li L to the new electric SUV Li i8, whose deliveries began only on August 20. At the same time, analysts pay attention to the upcoming launch of the Li i6 model. The bank believes that the official selling price will be less than the company initially announced and this will help to sharply increase demand for the car and cause a V-shaped rebound in the company's stock price by the end of 2025.

The company's strategic goal is to become one of the top-3 (or top-5 in the pessimistic scenario) premium electric car manufacturers in China by the end of 2025. To achieve this, Li Auto plans to increase sales of electric cars to 18-20 thousand per month.

This article was AI-translated and verified by a human editor