Mexican cab drivers don’t buy electric vehicles because they suddenly care about the environment. In most emerging markets, the lowest hanging environmental improvement fruit is eradicating the pervasive litter strewn about. That’s an education problem. Taxi cab drivers in places like Brazil are adopting electric vehicles because they’re cheaper to power and require minimal maintenance. Electric vehicles have fewer moving parts and don’t need oil changes. No more waiting in queues at the petrol station because of problems in the Straight of Hormuz. Top it off with extremely low entry-level pricing, and the electric vehicle is much more than just a way to signal that you care about the environment. It’s now becoming the preferred mode of transportation for people with little means. That’s precisely what BYD $BYDDY – the largest producer of electric vehicles in the world – plans to capitalize on.

While the company has seen spectacular revenue growth over the past few years, 2025 saw dismal revenue growth of just 3.5%. Understanding this stalled growth is critically important because that’s one of the reasons we would sell a disruptive growth stock. The other would be if our thesis changed, and our original BYD thesis has three main components: China’s economic growth, China’s global automotive aspirations, and the global growth of electric vehicles or EVs. So let’s start by looking at what went wrong in 2025.

“Automobiles and related products” accounted for 80% of the company’s revenues last year and grew 5%, but it was offset by “Mobile handset components and assembly” which declined 2.7%. The decline was attributed to domestic price competition which must have had a serious impact. That’s because their international growth was astounding. BYD exported about 1.05 million EVs in 2025, a 150% increase year-over-year. Overseas sales now account for 23% of annual automobile segment revenues, but they made up nearly 50% of Q1-2026 sales. That’s expected to increase even more as time goes on. Following their FY2025 results, BYD management told analysts that they’re “highly confident” they’ll reach 1.5 million vehicles sold overseas in 2026—or even higher.

BYD’s global aspirations are what’s most exciting about the company’s future potential. They’re aggressively pursuing a localization strategy, meaning they’re building plants in new markets to avoid tariff pressures. The company believes much of their future overseas growth will come from Southeast Asia, Latin America, and Europe. They’ve built or are currently building plants in Indonesia, Thailand, Brazil, and Turkey to take advantage of these future growth opportunities.

While international progress is impressive, we’re quite concerned about just how sharply growth dropped in the face of all this opportunity. Just imagine how dismal growth would have been were it not for their strong global sales numbers. This raises some key questions around domestic execution and further upside:

• How capable is BYD of engaging in price wars with domestic competitors?
• What does vehicle penetration look like in China and what’s the potential upside?
• What plans does management have to turn around domestic growth, and are there metrics we can use to track this progress?

BYD’s domestic operations appear dire, to put it gently. March 2026 marked the seventh consecutive month of year-over-year declines in BYD’s domestic sales. Breaking out quarterly domestic sales helps us visualize this trend which – while sporadic – appears to be generally declining.

Doing some basic math tells us that BYD didn’t just sell fewer cars in China, they also slashed their prices to better compete domestically. If we look at just the vehicle sales by geography, we can see that total BYD unit sales were actually up 8% globally in 2025. Since automotive revenues were only up 5%, that implies lower average selling prices in 2025 than 2024.

Sure enough, back in May 2025, Reuters reported that BYD cut prices by over 30% on their entry-level and mid-range models such as the Seagull, Dolphin, and Sealion. Then in February 2026, BYD cut prices again, even offering 0% financing for three years in an attempt to sweeten the deal.

This begs the question: Why aren’t these low-cost cars selling themselves? The answer comes down to competition. The China Automobile Manufacturers Association even went so far as to call the situation a “price war panic” which means BYD is now facing competition on three fronts:

• Established Chinese EV makers like Zeekr/Geely $0175.HK
• Up-and-coming Chinese EV players like Xiaomi $1810.HK, Nio $NIO, and Xpeng $XPEV
• And of course, Tesla $TSLA

As BYD hit a wall, Geely Automotive Group saw revenues jump 44% in 2025. Part of their resilience comes from their traditional internal combustion engine (ICE) vehicles which were largely shielded from the EV demand slowdown and price wars. Additionally, the finalization of their acquisition of Zeekr in late 2025 helped bolt on some growth. Prior to the acquisition, Zeekr was majority owned by Geely, and they saw 87% revenue growth as a standalone company in 2024. Geely saw a quick way to fuel their growth and took advantage of it. Outside of that, the company’s own Xingyuan/EX2 low-cost EV began significantly eating into BYD’s market share, selling more units in 2025 than BYD’s similarly-priced Seagull.

While not on the above list, Nio and Xpeng both saw double-digit revenue growth in 2025 as well. These two companies had already carved out a niche in luxury vehicles before expanding into low-cost options. The high-end vehicles act as a cash cow to fuel growth in low-cost markets.

Then there’s the South African elephant in the room. Tesla’s EV market share in China reached nearly 14% as of February 2026, their highest level in roughly two years. Their vertically integrated Shanghai gigafactory and immense size have enabled them with incredible pricing power in China.

So, how is BYD planning to manage these threats?

As the largest manufacturer of electric automobiles, BYD enjoys the economies of scale needed to compete on price and ultimately win. That’s what economic theory tells us. The reality is that its constrained by profits which means margin compression can be expected. This is where we start relying on the capabilities of AI to extract basic financial data because Chinese companies are notoriously difficult to analyze for any number of reasons. We’re halfway through this piece and have collectively agreed it’s extremely tough to research this company, even with the powers of AI. And this is probably one of the most “accessible” and easy-to-analyze Chinese companies out there.

Plotting operating margins and gross margins over time shows that former is quite tight and doesn’t leave a lot of wiggle room.

That’s exactly why BYD’s strategy surrounds technological differentiation, product refreshes, and infrastructure rather than further price cuts. The Chinese government has also “laid out pricing guidelines aimed at curbing below-cost selling in the auto supply chain,” which means the price wars may be short lived.

The long-term thesis would be that the smaller firms competing on price can only do that for so long. BYD owns the “complete supply chain layout from mineral battery cells to battery packs,” which supports low-cost production. Additional investments in technology will help them compete on functionality as well. For example, last month they released their first new battery in five years which offers ultra fast charging – almost as quick as it takes to refuel a petrol-powered vehicle. Thousands of these stations have already been built with 20,000 in total slated for this year alone. This aligns with national goals to double charging infrastructure.

With 120,000 engineers working on R&D initiatives, BYD hopes to compete on functionality instead of cost. Discerning Chinese buyers with money will be willing to pay more for features, or so they hope.

We only sell companies for two reasons – our thesis changes or revenue growth stalls. The former seems intact for BYD in respect to their tremendous progress in overseas expansion which is where the biggest opportunity lies. Over 90 million light vehicles are sold every year across the globe, and BYD has penetrated just one percent of that opportunity. If their investments in energy storage, humanoids, and autonomy bear fruit, that’s just some potentially thick icing on the cake.

But that stalled domestic sales growth can’t be ignored. With over 400 electric vehicle companies in China, it’s understandable they’re going to be under pressure from time to time. It’s the sudden drop in sales that’s concerning because it implies the company was blindsided by the price war. For BYD to continue growing in China they’ll need to displace competitors. Research shows that domestic electric vehicle saturation may be high and further growth tough to come by. China’s 2025 car sales grew by just under four percent, while a Chinese industry association expects flat growth this year.

That means much – if not all – of the remaining growth opportunity surrounds their ability to grow abroad. If BYD vehicles have high quality and a low total cost of ownership as we believe they do, growing market share in countries across the globe shouldn’t be a problem. If that should slow, look out below.

Access to information is a serious impediment to investing in foreign companies, especially when things go pear shaped and you need to understand why. BYD’s dramatic drop in growth is a concern, but we’re willing to wait it out a year because a) every growth story is allowed to have a stutter step and b) the foreign sales opportunity is bearing fruit much better than expected.

To invest in BYD you need to believe that they can utilize economies of scale in manufacturing and technology advancements to continue producing better products at a cheaper cost than competitors. They’ve done this successfully in the past, so we know they’re able to execute. Their mature production platform can churn out over five million vehicles which will eagerly be adopted by emerging markets across the globe where a lower total cost of ownership is welcomed with open arms. Continued strength in ex-China sales is proof the master plan is working.