As the annual and quarterly reporting seasons conclude, unusual financial figures from BYD have come to light.

In the first quarter of 2026, BYD's research and development (R&D) expenses fell by over 20% year-on-year, while most other listed automakers reported increases in their R&D expenses.

In recent years, BYD's R&D investment has consistently grown, maintaining its position as the top spender among A-share companies. The company stated in its 2025 annual report that it would "continue to increase R&D investment to promote the sustained and independent innovation of its supply chain."

This raises questions: Did BYD's R&D investment increase in Q1 2026? If so, why did its R&D expenses decline year-on-year?

Corporate R&D investment is primarily accounted for through either expensing or capitalization. Regulators have been focusing on whether listed companies engage in last-minute capitalization of R&D expenditures or use such accounting to manage earnings.

Although BYD's Q1 2026 report did not disclose the amount of capitalized R&D expenditure, its full-year 2025 capitalized R&D amount surged by 465.43% year-on-year, while its net profit attributable to shareholders dropped by 18.97%.

The significant, counter-trend drop in R&D expenses for Q1 2026 remains puzzling, raising concerns about potential inconsistencies in disclosure.

In Q1 2026, major listed automakers like SAIC Motor, Geely Automobile, Great Wall Motor, and Seres all reported year-on-year growth in R&D expenses.

An industry analyst noted that the widespread increase in automakers' R&D expenses highlights that the era of low-price competition in China's new energy vehicle market is quietly ending, with industry competition now shifting entirely to a contest of core technological strength.

Despite being the sales champion in new energy vehicles and the top R&D spender among A-shares, BYD's R&D expenses for Q1 2026 fell by 20.24% to 11.344 billion yuan.

Unlike its peers, BYD has consistently emphasized its R&D advantage. Chairman Wang Chuanfu recently stated, "BYD has invested over 200 billion yuan in R&D over more than 20 years. Today's achievements are built on long-term persistence and innovation."

Over the past six years, BYD's Q1 R&D expenses had shown year-on-year growth each time. The last Q1 decline was in 2020.

In Q1 2020, BYD's R&D expenses fell by 41.51% to 757 million yuan. Its net profit attributable to shareholders and non-GAAP net profit dropped by 84.98% and 214.50% year-on-year, to 113 million yuan and -472 million yuan, respectively.

A similar pattern has emerged. In Q1 2026, BYD's R&D expenses fell by 20.24% to 11.344 billion yuan. Its net profit attributable to shareholders and non-GAAP net profit dropped by 55.38% and 49.24% year-on-year, to 4.085 billion yuan and 4.148 billion yuan, respectively.

Summarizing the period from Q1 2020 to Q1 2026, BYD's R&D expenses show a positive correlation with its net profit attributable to shareholders and non-GAAP net profit.

From Q1 2021 to Q1 2025, BYD's R&D expenses increased year-on-year each quarter, and its net profit attributable to shareholders and non-GAAP net profit also grew during the same periods.

BYD stated in its 2025 annual report that it would "continue to increase R&D investment." If its R&D investment in Q1 2026 decreased, leading to lower R&D expenses, would this contradict its previous disclosures?

If BYD's R&D investment in Q1 2026 actually grew, but its R&D expenses fell, does this point to an increase in the amount of R&D expenditure being capitalized?

A review shows that BYD has not disclosed its total R&D investment or the amount of capitalized R&D expenditure in its quarterly reports for past years.

The sudden, sharp increase in the annual capitalized R&D amount raises questions about whether it was used to offset weaker performance.

Annual reports provide more comprehensive data, further highlighting the unusual shift in BYD's R&D accounting.

For the full year 2025, BYD's total R&D investment grew by 17.13% year-on-year to 63.441 billion yuan. Within this, the capitalized portion of R&D expenditure surged by 465.43% year-on-year to 5.463 billion yuan.

Concurrently, the proportion of capitalized R&D to total R&D investment increased from 1.78% for the full year 2024 to 8.61% for the full year 2025, a rise of 6.83 percentage points.

Data shows that in 2025, BYD's capitalized R&D amount ranked third among A-share companies. Its year-on-year growth rate ranked first among listed automakers, far exceeding that of Seres, which ranked second.

Comparing the 2025 annual reports of the two automakers, BYD did not provide a reason for the increase. Seres mentioned that the rise in its capitalized R&D amount for 2025 was mainly due to an increase in R&D projects entering the development stage.

The last time BYD reported a significant increase in its capitalized R&D amount with a high growth rate was in 2021. At that time, its capitalized R&D expenditure grew by 141.56% year-on-year to 2.636 billion yuan.

Simultaneously, the proportion of capitalized R&D to total R&D investment increased from 12.75% for the full year 2020 to 24.80% for the full year 2021, a rise of 12.05 percentage points.

Coincidentally, BYD's performance was weak in both 2021 and 2025. Its net profit attributable to shareholders fell by 28.08% and 18.97% year-on-year, respectively, while its non-GAAP net profit dropped by 57.53% and 20.38% year-on-year, respectively.

A financial professional in the automotive industry noted that a company's choice between capitalizing or expensing R&D is an accounting policy decision. However, if such a policy is abused, it can become a tool for earnings management.

Specifically, if a company increases the amount of R&D expenditure it capitalizes in a given period, this amount is recorded on the balance sheet under development costs or intangible assets. This does not "erode" current period profits and can alleviate pressure on current earnings.

From 2017 to 2019, BYD's capitalized R&D as a percentage of total R&D investment was 40.32%, 41.55%, and 33.15%, respectively. Its net profit attributable to shareholders fell by 19.51%, 31.63%, and 41.93% year-on-year during those years.

Conversely, if a company increases the amount of R&D it expenses, this is recorded in the current period's profit and loss statement, thereby reducing profits. The aforementioned financial professional stated that companies can "hide" profits within R&D expenses to pay less tax.

From 2022 to 2024, BYD's capitalized R&D as a percentage of total R&D investment was 7.76%, 0.86%, and 1.78%, respectively. Its net profit attributable to shareholders grew by 445.86%, 80.72%, and 34.00% year-on-year during those years.

Market skepticism persists, and future amortization pressure from capitalized R&D is set to surge.

BYD's capitalized R&D amount suddenly jumped from 966 million yuan for the full year 2024 to 5.463 billion yuan for the full year 2025, deviating from its previous trend.

From 2018 to 2020, BYD's capitalized R&D amounts were 3.547 billion yuan, 2.792 billion yuan, and 1.091 billion yuan, respectively, showing a consistent downward trend.

The comparison between these two periods is based on BYD having launched significant technologies around those times.

BYD launched its first-generation Blade Battery in March 2020 and its second-generation Blade Battery along with flash-charging technology in March 2026.

The issue is that before the launch of the first-generation Blade Battery, BYD's annual capitalized R&D amount showed a steady, gradual decline. However, before the launch of the second-generation technology, its annual capitalized R&D amount experienced explosive growth.

"This raises the possibility of management adjusting the financial statements," the automotive financial professional commented, adding that companies must maintain consistency in their application of accounting standards when preparing reports.

Furthermore, a sudden, significant increase in capitalized R&D expenditure creates substantial hidden risks for future operations.

Intangible assets formed from capitalized R&D expenditure must be amortized over several future years, leading to increased amortization pressure in those years.

From 2022 to 2024, BYD's capitalized R&D amounts were relatively low at 1.569 billion yuan, 343 million yuan, and 966 million yuan, respectively. The sudden increase to 5.463 billion yuan in 2025 means amortization pressure will surge significantly in 2026 and beyond.

2026 is a pivotal year for BYD. Since the second half of 2025, the company's monthly vehicle sales have been persistently weak, primarily due to a significant year-on-year decline in domestic vehicle sales.

For example, in the first four months of 2026, BYD's domestic monthly vehicle sales were 109,600, 89,600, 180,100, and 186,000 units, representing year-on-year declines of 53.22%, 64.98%, 40.88%, and 38.20%, respectively.

In December 2025, Wang Chuanfu publicly addressed the reasons for the sales slump, including that BYD's current technological lead is not as strong as in previous years, the market impact of its technological achievements has diminished, and industry homogenization is becoming more apparent.

This indicates that BYD urgently needs to enhance the appeal of its vehicles through new technology. The problem is that even after launching the second-generation Blade Battery and flash-charging technology, its monthly sales remain in a year-on-year decline.

This means that going forward, BYD will not only bear the amortization pressure from its capitalized R&D but also face the risk that these capitalized R&D projects may fail.

The automotive financial professional stated that if a capitalized R&D project fails, the related capitalized expenditure would be written off as a loss in that period, which could significantly impact various operating metrics in the short term.

Inquiries regarding these matters were sent to BYD's securities department, but no response was received by the time of publication.