Nomura Securities indicated in a recent research report that BYD Company Limited's performance may have bottomed out in the second quarter of 2025. Despite intensifying domestic market competition putting pressure on the company's near-term profitability, its continued investments in technology upgrades and rapid overseas market expansion are building momentum for a potential profit inflection point in 2026.

According to analysts Joel Ying and Ethan Zhang in a September 1 report, BYD Company Limited's second-quarter performance fell short of market expectations, with profitability significantly impacted. The gross profit margin (GPM) declined to 16.3%, the lowest level since Q3 2022, while the operating profit margin (OPM) dropped to 1.4%, hitting a five-year low.

The analysts attributed this primarily to incentive payments made to dealers ahead of schedule to address competition, negative operating leverage effects from capacity growth not keeping pace with business scale, and continuously soaring R&D expenses.

However, this is viewed as a period of strategic adjustment pain. Nomura believes BYD Company Limited is leveraging substantial R&D investments to prepare for major technology platform upgrades in 2026, while its overseas market expansion momentum remains exceptionally strong, serving as a key engine to offset domestic market pressures. Although Nomura lowered its profit forecasts and target price to RMB 133, it maintains a "Buy" rating, clearly indicating that 2026 will be a crucial year for the company to regain growth momentum and achieve a profit turnaround. As of publication, BYD Company Limited's stock price fell 3.82% to RMB 109, representing 22% upside to the target price.

**Q2 Performance Under Pressure, Profitability Hits Multi-Year Low**

According to Nomura's report, BYD Company Limited faced severe challenges in Q2 2025. During the quarter, the company's operating profit margin was only 1.4%, down 3.9 percentage points year-over-year and 1.9 percentage points quarter-over-quarter, marking the lowest level in at least five years. The gross profit margin declined to 16.3%, also under pressure.

The performance decline stemmed from several factors. First, to address intense market competition, the company made advance payments for dealer rebates. Second, rapid capacity expansion outpaced business scale growth, resulting in negative operating leverage effects. Additionally, the company's R&D investments continued to increase, with Q2 R&D expenses rising 71% year-over-year and 8% quarter-over-quarter, further compressing profit margins.

Data shows BYD Company Limited achieved net profit of RMB 6.4 billion in Q2, down 30% year-over-year and 31% quarter-over-quarter. Nomura's calculations indicate per-vehicle profit dropped sharply to below RMB 5,000, the lowest level in three years, clearly reflecting the operational challenges the company faced during the quarter.

**Domestic Market Strategy Setback, Awaiting 2026 Strategic Transformation**

Nomura stated that BYD Company Limited's "Intelligent Driving Democratization" campaign launched in 2025 failed to achieve expected results. Market feedback reaffirmed that in China's automotive market, particularly in the mass market below RMB 200,000, price remains a more decisive factor in attracting consumers than intelligent driving features.

The report noted that a series of key traffic accidents also heightened consumer awareness of L2 assisted driving system limitations, making their value contribution to vehicle models limited. Meanwhile, government-driven "anti-involution" policies also constrained BYD Company Limited's ability to leverage its market pricing power to address competitor challenges.

Based on these factors, Nomura expects BYD Company Limited to achieve only "gradual improvement" in the remainder of 2025, especially in the Chinese market. However, the report emphasized that lessons learned from 2025's challenges will adequately prepare the company for crucial strategies in 2026. As a leader in China's electric vehicle market, the market expects BYD Company Limited to reverse the situation in 2026.

**Overseas Expansion Highlights Strong Growth Offsetting Domestic Risks**

While facing challenges in the domestic market, BYD Company Limited's overseas business is becoming its growth "new engine." The report described overseas sales as "coming to the rescue" and likely to help the company achieve further growth.

Data shows BYD Company Limited's overseas sales reached 464,000 units in H1 2025, with cumulative sales in the first seven months reaching 545,000 units, up 128% and 133% year-over-year respectively. With the company's second overseas factory in Brazil beginning mass production in July 2025 and its export-oriented RoRo fleet expanding to 8 vessels (as of end-August 2025), its overseas growth potential is being further unleashed.

According to European Automobile Manufacturers' Association (ACEA) data, BYD Company Limited's new vehicle registrations in the EU increased 251% year-over-year to 58,000 units in the first seven months of 2025. Nomura expects that as domestic market competition continues to intensify, BYD Company Limited will further strengthen its global presence in coming years, with these efforts ultimately bearing fruit in the long term.

**Lowered Profit Forecasts, Maintains "Buy" Rating**

Considering domestic market challenges and positive overseas market prospects, Nomura lowered BYD Company Limited's core financial forecasts for fiscal years 2025-2027. Passenger vehicle sales forecasts were reduced by 10-11%, total revenue forecasts by 9%, and both gross margin and operating margin forecasts by 2%.

Consequently, the firm also lowered its net profit forecasts for BYD Company Limited's 2025-2027 fiscal years by 27-30%. After adjustments, Nomura expects BYD Company Limited to achieve revenue compound annual growth rate (CAGR) of 15% and earnings CAGR of 18% during 2024-2027.

Despite lowering forecasts and target price, Nomura maintains its "Buy" rating on BYD Company Limited. The report concludes that while the 2025 "Intelligent Driving Democratization" strategy failed to deliver results and market sentiment is unlikely to improve substantially in the near term, BYD Company Limited is expected to achieve a turnaround in 2026 through new strategies and continued overseas market expansion, further consolidating its position as a top global automaker. The firm's new target price of RMB 133 corresponds to 23x 2026 estimated P/E ratio.