How China's subsidy rollback has hit EV unicorn BYD's annual profits

Withdrawal of state support and an intensifying price war are squeezing BYD's margins and sales, forcing the EV major to rely on exports to sustain growth

The end of government subsidies in China’s electric vehicle (EV) market is beginning to show its impact, with industry leader BYD reporting its first annual profit decline in four years.

 

According to a report by Financial Times, the Shenzhen-based automaker’s earnings have come under pressure as policy support tapers off and competition intensifies, marking a turning point for a sector that had long been fuelled by state incentives.

 

Why China ended EV subsidies

 

China’s decision to phase out EV subsidies last year has weakened demand momentum, particularly in a market already grappling with oversupply and aggressive pricing.

 

 

From January 1 this year, China stopped full EV tax exemption in a bid to steer EV market away from “price-driven competition” toward “value-driven competition". The earlier subsidy-driven boom led to excess capacity and a proliferation of smaller, less competitive manufacturers, prompting authorities to reduce support and encourage consolidation.

 

For BYD, this shift has coincided with a slowdown in sales, with its core EV business seeing declining volumes for six consecutive months. The loss of subsidies has made vehicles less affordable for consumers, forcing manufacturers to absorb costs or cut prices.

 

This has accelerated a broader price war across China’s EV sector, compressing margins for all players.

 

BYD's profits and margins under pressure

 

BYD reported a nearly 20 per cent drop in annual net profit to Rmb32.6 billion, missing market expectations, reported Reuters. The pressure was especially visible in the final quarter, when profits fell 38 per cent year-on-year.

 

Revenue growth has also slowed sharply, rising just 3.5 per cent, reflecting weaker pricing power despite steady demand.

 

Chairman Wang Chuanfu described the market as being in a “brutal knockout stage”, underscoring the intensity of competition as companies fight to retain market share.

 

Market share slips amid rising competition

 

The company’s share of China’s EV market has declined significantly, falling from about 27 per cent a year earlier to around 17 per cent in early 2026, according to Financial Times.

 

Domestic rivals including Geely, SAIC, Huawei-backed ventures and Xiaomi have expanded aggressively, leveraging competitive pricing, new product launches and technology integration.

 

This growing competition has eroded BYD’s dominance, even as overall EV adoption in China continues to rise.

 

Exports become a key lever

 

With domestic growth under strain, BYD has increasingly turned to international markets. Overseas revenue rose roughly 40 per cent, supported by expansion into regions such as Latin America, Europe and Southeast Asia.

 

The company is building manufacturing capacity across multiple countries and investing in shipping infrastructure to support exports.

 

Financial strain builds

 

The pressure on profitability is also reflected in BYD’s financials. Operating cash inflows have declined by more than half, while borrowing has increased sharply as the company continues to invest in growth, reported Financial Times.

 

Although BYD has said it has sufficient liquidity, the combination of rising debt and weaker margins could weigh on its balance sheet if market conditions remain challenging.