Chinese automaker BYD reported on Tuesday its steepest profit decline in years and a collapse in operating cash flow during the first quarter of 2026, as the prolonged price war in its home market eroded margins.
Net profit attributable to shareholders fell 55.4% from a year ago to 4.08 billion yuan ($561 million) in the first three months of the year, from 9.15 billion yuan in the same period last year.
Operating revenue declined 11.82% to 150.23 billion yuan ($20.6 billion), down from 170.36 billion yuan a year earlier — but above the 140.4 billion yuan analyst consensus.
The company received 12.47 billion yuan in government subsidies in 2025, equivalent to 38.2% of net profit, as EV previously reported.
Net profit excluding extraordinary items dropped 49.2% to 4.15 billion yuan, while basic earnings per share fell 56.89% to 0.4480 yuan, adjusted for the bonus shares and capital reserve capitalization the BYD issued in July 2025.
The figures are the first concrete evidence of how deeply the Chinese price war has hit BYD‘s profitability in 2026, after the company posted its first annual profit decline in four years for 2025.
Chairman Wang Chuanfu warned in late March that competition in China’s EV market had reached “fever pitch and is undergoing a brutal ‘knockout stage,'” as EV reported at the time.
BYD‘s European sales rose 169.7% year-over-year to 50,646 units in the first quarter, lifting market share to 1.8% from 0.7%, as EV reported last week.
Cash Flow Collapse
Net cash flow from operating activities fell 67.48% to 2.79 billion yuan, from 8.58 billion yuan in the first quarter of 2025.
Cash received from sales of goods and services dropped 18.93% to 151.60 billion yuan, from 186.99 billion yuan a year earlier — a steeper decline than the headline revenue figure suggested.
The company offset the operating cash shortfall through borrowings.
Short-term borrowings surged 72.3% to 66.30 billion yuan at the end of March, from 38.48 billion yuan at the end of 2025, which the company attributed to “the increase in group financing needs.”
Bills payables more than doubled to 48.60 billion yuan, up 116.4% from 22.46 billion yuan three months earlier, on what BYD described as “the increase in bill settlement.”
The surge in bills payables comes as Beijing has pressured the company to pay thousands of suppliers faster, raising questions over BYD‘s longstanding practice of using money owed to suppliers as a form of low-cost financing to fund its growth.
Total liabilities reached 639.96 billion yuan at quarter-end, up from 625.19 billion yuan at the start of the year.
Inventory Build-Up
Inventories rose to 160.41 billion yuan at the end of March, an increase of nearly 22 billion yuan from 138.42 billion yuan at year-end.
The build-up coincides with weakening domestic sales, which hit a recent nadir in January and February before recovering somewhat in March.
BYD was running at below 50% factory capacity in early March, according to data shared on social media that drew commentary from Tesla chief executive officer Elon Musk, who called the slowdown “tough sledding.”
The Shenzhen-based company sold 4.6 million vehicles in 2025, up 7.7% from 4.27 million a year earlier, but the slowest growth in five years and below an originally guided 5.5 million-unit target that BYD cut by nearly 1 million units in September.
R&D Cuts
Research and development (R&D) expenses fell 20.25% to 11.34 billion yuan, from 14.22 billion yuan in the first quarter of 2025.
The reduction comes against a development push from rivals including Xiaomi, XPeng, and Huawei-backed brands, all of which have ramped up R&D spending tied to autonomous driving and software platforms.
Sales expenses fell to 5.83 billion yuan from 6.18 billion yuan, while administrative expenses rose to 5.08 billion yuan from 4.91 billion yuan.
Foreign Exchange Hit
Finance expenses swung to a 2.10 billion yuan charge in the first quarter, compared with a 1.91 billion yuan gain a year earlier — a 210.04% reversal that the company attributed to foreign exchange losses.
Investment income fell 87.68% to 85.87 million yuan, from 696.73 million yuan, “mainly due to the increase in losses from derecognition of financial assets measured at amortised cost,” BYD said.
Gains from changes in fair value swung to a 101.26 million yuan loss, from a 246.27 million yuan gain in the prior-year period, on losses from changes in the fair value of derivative financial instruments.
Tax and Subsidy Context
Tax and surcharge expenses fell 42.5% to 1.88 billion yuan, from 3.27 billion yuan, on lower consumption tax.
Income tax expense dropped 57.9% to 735.46 million yuan, on lower pretax profit.
Government grants charged to gains or losses for the period totaled 183.85 million yuan, primarily related to automobile and automobile-related products.
The company received 12.47 billion yuan in government subsidies in 2025, equivalent to 38.2% of net profit, as EV previously reported.
Overseas Push as Counter-Strategy
Margin pressure at home has accelerated BYD‘s overseas push, with the company benefiting from a global energy shock that has driven consumers away from petrol and diesel vehicles in the wake of the Iran war.
The Shenzhen-based company has set a 2026 overseas sales target of 1.5 million vehicles, raised from 1.3 million units earlier in the year, after exporting more than 1 million vehicles in 2025 for the first time.
Overseas markets carry higher profit margins than the domestic market, where the price war has compressed average selling prices since BYD launched a 22-model price-cutting campaign with discounts of up to 34% in May 2025.
In Europe, the company began trial production at its Hungarian plant in Szeged in January 2026, with series production scheduled for the second quarter, allowing BYD to bypass the 27% combined tariff applied to its China-made imports into the EU since October 2024.
A second European plant in Manisa, Turkey, is scheduled to open later this year, while a third site is under review with Spain and Portugal as the leading candidates.
BYD also operates or is building factories in Brazil, Indonesia, Thailand, and Uzbekistan.
Balance Sheet
Total assets reached 902.08 billion yuan at quarter-end, up 2.08% from 883.73 billion yuan at the end of 2025.
Total shareholders’ equity attributable to the parent company rose 1.48% to 249.92 billion yuan, from 246.27 billion yuan.
Long-term borrowings remained roughly flat at 60.57 billion yuan, while construction in progress rose to 59.32 billion yuan from 48.29 billion yuan, reflecting ongoing capacity expansion.
Trade payables fell to 164.33 billion yuan, from 186.74 billion yuan at year-end.
