BYD has confirmed series production of its in-house “Xuanji A3” processor, a 4-nanometer chip that the company says is the first of its kind to emerge from Chinese development and capable of supporting Level 3 and Level 4 autonomous driving. Three of these processors ganged together deliver more than 2,100 TOPS of computing power, and management has committed over 100 billion yuan to R&D in pursuit of what it calls the “intelligence phase” — a future where traffic accidents virtually disappear through better sensors and software. The move positions BYD as the only global automaker that controls the entire chip supply chain, from design to fabrication, across four research centers and five chip plants.
That technological bravado stands in sharp contrast to the numbers coming out of BYD’s income statement. Net profit tumbled 55.38 percent year-on-year in the first quarter of 2026, while revenue also declined. Yet within that grim headline lay a counterintuitive bright spot: gross margin climbed to 18.81 percent sequentially, its highest level in nearly a year. The divergence — falling earnings alongside rising operational margin — has left analysts and investors grasping for a clean narrative. Goldman Sachs flagged the first quarter as the probable profit trough, arguing that the shift toward higher-margin export markets could set the stage for a second-half recovery.
The export engine is indeed revving. In the first half of 2026, BYD’s domestic sales collapsed 39.6 percent to 1,016,255 vehicles, a drop driven by the fierce price war still raging in China’s EV market. Overseas, the story was radically different. UK sales surged 94.9 percent in the same period to 37,795 units, and Chinese brands now command a 16.1 percent share of Britain’s electric-car market. In May alone, BYD sold 160,644 vehicles abroad — a record and an 80.4 percent jump from a year earlier. The company is targeting roughly 1.5 million sales outside China for the full year, with Europe, Southeast Asia and Australia as primary battlegrounds.
That overseas push is already reshaping the profit picture. According to Goldman Sachs, the share of international sales in BYD’s total volume leaped from 21 to 46 percent in the first quarter, propelling EBIT to beat expectations by 82 percent. International markets could contribute as much as 62 percent of group profit by 2030, the bank estimates, while overseas revenue already accounts for more than 38 percent of the total. The margin expansion visible in Q1 could therefore prove sustainable if export momentum holds — especially given that BYD’s fleet of vehicles equipped with driver-assistance systems passed 3.33 million units at the end of June, collecting more than 210 million kilometers of real-world driving data daily to refine its algorithms.
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The bear case is equally well-anchored. Operating profit fell for the first time since 2021, a fact that limits the enthusiasm around margin improvement. The domestic market remains trapped in a brutal price war, and BYD’s own financial statements revealed rising R&D spending and a higher financing requirement — a potential harbinger of fresh capital measures. If the company needs to raise additional funds while the home-market squeeze continues, the thesis that Q1 represented the bottom would weaken considerably. So far, the export-led recovery exists only in monthly delivery figures, not in a full quarterly profit report.
The stock market reflects this unresolved tension. BYD shares closed at €9.78 on Wednesday, up 5.16 percent over seven days and 6.62 percent on the month, yet still down 10.73 percent year-to-date and 27.69 percent lower than 12 months ago. The stock has climbed 21.78 percent from its 52-week low of €8.03 set on June 30, but remains 33.92 percent below the July 2025 high of €14.80. Technically, the stock sits just above its 50-day moving average of €9.67, while the 200-day average of €10.66 remains out of reach. A relative strength index of 58.3 and annualized volatility of 40 percent suggest a name caught between recovery and retreat — neither oversold nor in a capitulation phase.
The next decisive datapoint will be BYD’s half-year results for 2026, for which a date has yet to be announced. Until then, monthly delivery reports from overseas and any updates on financing plans will determine whether the margin recovery narrative gains the upper hand or whether the domestic price war proves the more powerful force. Meanwhile, the Xuanji A3 chip gives BYD a technological moat that few Chinese rivals can match, but translating that edge into sustainable profit growth will require the export surge to keep outpacing the home-market rout.
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