Behind BYD's halved net profit in the first quarter, the true "culprit" was approximately RMB 2 billion in foreign exchange losses, rather than deteriorating operations — excluding this disturbance, the net profit per vehicle rose against the trend to RMB 8,900, with gross margin improving by 140 basis points quarter-on-quarter. More crucially, the weight of overseas business further increased, with overseas net profit per vehicle being three times that of domestic, and overseas revenue accounting for about 70% of total vehicle income in Q1, with an estimated 60% for the full year. JPMorgan assessed: Q1 marks the trough of this profit cycle, with sales expected to surge 60% quarter-on-quarter in Q2.
BYD's profit structure is undergoing a systematic transformation, with overseas operations evolving from an additional driver of sales growth to a core pillar supporting overall profitability — in the first quarter, overseas revenue accounted for approximately 70% of total vehicle revenue, while the profitability per vehicle in overseas markets was several times higher than in the domestic market.
BYD's net profit in the first quarter was 4.1 billion yuan, a year-on-year decline of 55%. While the figure itself raises concerns, the underlying cause points to a non-operational factor: approximately 2 billion yuan in foreign exchange losses — the appreciation of the renminbi against the US dollar and euro directly compressed reported profits.
According to TradingView, Nick Lai, Head of Asia-Pacific Automotive Research at JPMorgan, noted in a recent report that after excluding foreign exchange fluctuations, gross margin actually improved. The net profit per vehicle in the first quarter was approximately 8,900 yuan, higher than 6,800 yuan in the same period last year and roughly on par with 8,800 yuan in the fourth quarter of last year; gross margin improved by 140 basis points quarter-on-quarter to 18.8%. After the release of the first-quarter earnings report, Jeff Chung, an analyst at Citi, maintained a 'Buy' rating. His calculations showed that after adjusting for foreign exchange factors, the net profit per new energy vehicle (NEV) in the domestic market was about 751 yuan, compared to a previous consensus expectation of a net loss of 1,000 to 3,000 yuan per vehicle.
JPMorgan provided a more definitive forward-looking assessment: the first quarter represents the profit trough of this cycle, and sales are expected to accelerate starting from the second quarter, with a projected quarter-on-quarter increase of approximately 60%, significantly higher than the industry's seasonal average of 25%-30%; the importance of overseas markets will further increase, with overseas revenue accounting for approximately 70% of total vehicle revenue in the first quarter and an estimated 60% for the full year.
Based on the above analysis, JPMorgan raised its target price for BYD's H shares from HK$110 to HK$120 and for A shares from 95 yuan to 120 yuan, maintaining an 'Overweight' rating. Citi maintained its target price at HK$142. Supporting this upward revision logic are multiple near-term catalysts, including accelerated deployment of the FlashCharge network, the gradual commissioning of overseas factories, and the upcoming ADAS Technology Day.
True Picture of Q1: Per-Vehicle Profit Not Weak, Two Factors Dragged Down Results
First-quarter revenue decreased by 12% year-on-year and 37% quarter-on-quarter to 150.2 billion yuan, reflecting a 31% year-on-year and 47% quarter-on-quarter decline in sales volume to approximately 690,000 units — consistent with historical patterns as the first quarter is traditionally a low season.
Gross margin, however, showed improvement. The first-quarter gross margin was 18.8%, up 140 basis points from 17.4% in the fourth quarter of last year, indicating that BYD's cost control and product mix are trending positively.
Behind the overall data for the first quarter were two notable unconventional drags that need to be isolated.
The first is foreign exchange losses. Approximately 2 billion yuan in foreign exchange losses were recorded in the first quarter, compared to about 1.9 billion yuan in foreign exchange gains in the same period last year. This comparison created nearly 4 billion yuan in year-on-year pressure, which almost entirely explains the gap relative to market expectations. This factor lacks a systemic hedging mechanism, and volatility will persist. The second is the sharp decline in profits from BYD Electronics (in which BYD holds approximately 65% equity), from 622 million yuan in the first quarter of last year to 27.8 million yuan, adding further drag to the consolidated financials.
The increase in the expense ratio was within expectations. The operating expense ratio for the first quarter expanded from 9.3% in the fourth quarter to 13.6%, primarily due to the amplification of the dilution effect on R&D and administrative expenses following a decline in the revenue base. Notably, BYD has historically tended to directly expense the majority of its R&D expenditures rather than capitalize them as some peers do, meaning that the pressure of R&D on its income statement is inherently higher – in other words, net profits more directly reflect R&D investment compared to peers.
Overseas: Transitioning from 'selling cars' to 'building ecosystems,' the profitability logic has changed.
The reshaping of BYD’s valuation logic by its overseas business is not only reflected in the proportion of revenue but also in the fundamental differences in per-vehicle profit structure.
Citi’s calculations show that the net profit per exported vehicle in the first quarter was approximately RMB 18,000; JPMorgan’s forecast points to around RMB 20,000 per overseas vehicle by 2030, compared to about RMB 6,000 domestically during the same period – a difference of more than three times. Overseas revenue accounted for approximately 70% of total vehicle revenue in the first quarter, with an estimated 60% for the full year, while this proportion is projected to be around 40% in 2025, underscoring the accelerating structural shift.
In terms of production capacity, after the successive commissioning of plants in Brazil, Indonesia, and Hungary, BYD's annual production capacity outside China will exceed 800,000 vehicles, with room for further expansion. JPMorgan noted that localized production is directly significant for avoiding tariff barriers and integrating into local supply chains. Notably, depreciation and amortization per exported vehicle rose to RMB 11,200 in the first quarter, indicating that fixed cost pressures from overseas capacity expansion are beginning to show in the data.
The deployment of charging infrastructure further strengthens the moat of BYD’s overseas ecosystem. BYD plans to deploy 6,000 fast-charging stations abroad by April 2027, with 3,000 in Europe and the rest covering ASEAN and emerging markets. Management revealed at the Beijing Auto Show that markets like Singapore have an investment payback period of approximately two years. The domestic fast-charging network is also accelerating – the target is to deploy 20,000 stations by 2026, with over 5,000 already installed as of April this year, achieving more than 25% progress and ahead of schedule.
Beijing Auto Show boosts domestic confidence, rising oil prices create macro tailwinds.
Prior to the release of the report, Nick Lai had just completed field research at the Beijing Auto Show. In his report, he mentioned that BYD unveiled two models at the show featuring next-generation design language – the Tang SUV and Sealion 8 SUV – both of which garnered 'substantial pre-orders,' providing the direct basis for JPMorgan’s renewed confidence in domestic sales momentum.
The latest demand data disclosed alongside BYD’s first-quarter earnings also corroborates this assessment: cumulative orders for the Song Ultra EV in its first month reached 61,000 units.
The macro environment also provided support. Rising oil prices naturally enhance the cost-of-ownership advantage of new energy vehicles (NEVs); as NEV prices have largely aligned with those of internal combustion engine vehicles, consumer switching thresholds are lowering. This backdrop, combined with feedback from the Beijing Auto Show, collectively forms the basis for raising second-quarter sales forecasts.
Cash Flow and Depreciation: The Unresolved Question of Q2 Profit Elasticity
The core variable of Q2 profit elasticity is a depreciation arithmetic problem. Citi's scenario analysis shows that, assuming sales of approximately 1.12 million units in Q2, if per-unit depreciation and amortization decrease by 3,500 yuan quarter-on-quarter, core net profit (excluding foreign exchange impacts and BYD Electronics) could reach an upper limit of 11.3 billion yuan. If depreciation remains at the Q1 level, the baseline estimate would be 7.4 billion yuan — a gap of nearly 4 billion yuan between the two scenarios.
Capital expenditure in Q1 was 22 billion yuan, down 41% year-on-year and 47% quarter-on-quarter, indicating a favorable trend for long-term depreciation reduction. However, there is a time lag between capital expenditure and depreciation, and how much operational leverage can be realized in Q2 remains an open question.
Pressure on the cash flow front also warrants attention. Free cash flow in Q1 was negative 19.3 billion yuan, with inventory increasing by 22 billion yuan quarter-on-quarter, accounts receivable rising by 7.2 billion yuan, and accounts payable decreasing by 34 billion yuan during the same period — all three indicators moving towards increased funding pressure. This suggests that BYD played a financing role for both upstream and downstream partners in Q1, with operating cash flow at only 2.8 billion yuan, down 67% year-on-year. If sales in Q2 effectively reduce inventory, this pressure may ease partially; otherwise, continued inventory buildup will sustain cash flow pressures.
Inflationary pressures on the cost side have not yet dissipated, and there is a lack of systematic hedging mechanisms for foreign exchange losses, both of which constitute risk variables requiring continuous monitoring throughout the year.
Editor/joryn