BYD Company (BYDDY 4.14%) has become the global electric vehicle (EV) champion by doing what most automakers couldn't -- scaling profitably. In 2024, it sold more than 4.27 million EVs, surpassing Tesla in total units. Its deep vertical integration, battery technology, and global expansion strategy have made it one of the most formidable players in the industry.
But even great companies face real headwinds. For investors, BYD's next phase won't be defined by how many cars it builds, but by whether it can defend profits, expand globally amid geopolitical pushback, and navigate China's cooling market.
Here are the three most significant risks that investors should watch closely.
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Margin compression from price wars
BYD's biggest near-term challenge is profitability. The Chinese EV market is in a full-blown price war, with Tesla, Xiaomi, Nio, and dozens of domestic rivals slashing prices to capture share. BYD -- though still the cost leader -- hasn't been immune.
In the second quarter of 2025, BYD's net profit fell nearly 30% year over year, even as revenue grew by double digits. It's a clear signal that the company is sacrificing margin for volume. For perspective, profit grew by 100% in the first quarter of 2025, suggesting that competition has intensified since then.
BYD's edge has always been scale and integration -- building nearly everything in-house, from batteries to chips. But even vertical integration has limits when an entire industry is cutting prices to survive. If competitors like Xiaomi continue undercutting, BYD's operating margins could come under sustained pressure.
For investors, this is the number to watch each quarter. If gross margins continue to decline without a clear recovery plan -- such as higher-margin exports or premium launches -- it could signal deeper stress beneath the growth story.
OTC: BYDDY
Key Data Points
Geopolitical and regulatory risks
BYD's long-term ambition depends on international growth, but geopolitics is now its biggest wildcard. The European Union has imposed anti-subsidy tariffs of up to 35.3% on Chinese EVs, a direct hit to BYD (17%) and its peers. The United States has gone even further, levying a 100% tariff on Chinese-made EVs, effectively closing off the world's most lucrative market.
That's not just a tax problem -- it's a strategic one. BYD's global expansion depends on entering Europe, Latin America, and emerging markets. Tariffs, trade investigations, or political backlash could delay that plan or make its products less competitive overseas.
Adding to the risk, BYD recently faced reputational risk in Brazil after local authorities shut down a contractor accused of "slavery-like" labor conditions at a construction site. While BYD quickly terminated the supplier, it highlighted the reputational scrutiny that follows global expansion.
For investors, geopolitical risk is binary -- it can change overnight. Europe remains BYD's gateway to the West, but if tariffs become permanent or expand, it could severely limit the company's global runway.
The silver lining is that BYD has been accelerating local manufacturing in countries like Hungary, Turkey, and Brazil to reduce its exposure to tariffs. Even then, political risk is an ever-present overhang that investors must accept.
Domestic overcapacity and slowing demand
Even as BYD pushes abroad, its home market in China is becoming a challenge.
One main culprit is the success of the EV industry as a whole. According to statistics from the China Passenger Car Association, the retail penetration rate of new energy passenger cars in China has reached 50.2% in the first half of 2025. So, if China's automotive industry doesn't grow anymore -- an overly pessimistic view, though -- the whole EV industry can only double in size from here on.
Another important statistic to note is that the market share of Chinese domestic brand passenger cars reached 69% in the first half of 2025. While this indicates that the Chinese manufacturers, as a whole, are becoming the preferred suppliers, it also suggests that the room for growth is shrinking for local brands like BYD.
It doesn't help that the general economy in China is still recovering from the property crisis, making it challenging for consumers to spend on high-ticket items like cars. Add to that the extensive competition mentioned above, and we could see a negative cycle of intensifying discounts, dealer inventory buildup, and weaker pricing power.
To its credit, BYD is moving quickly to diversify globally. It's ramping up exports, launching new plants in foreign countries, and entering markets. But those facilities will take time to scale, and in the meantime, China is the dominant market for the EV company, accounting for 64% of revenue in the first half of 2025.
What it means for investors
BYD's structural advantages -- vertical integration, manufacturing scale, and cost leadership -- are real. But the next phase of its story will test how durable those advantages are under pressure.
The risks fall into three buckets: margin erosion, political friction, and domestic saturation. None of these is fatal, but together they could make the next few years bumpier than the last.
Investors looking to buy the stock should do so with their eyes wide open.