Nomura: BYD returns to revenue growth in the third quarter, but promotions and costs squeeze gross margin

Why did revenue still miss market expectations despite returning to growth?

In the third quarter of 2026, BYD generated approximately 221 billion yuan in revenue, up 14% both year on year and quarter on quarter. It was the first year-on-year increase since the third quarter of 2025, with overseas expansion an important driver. Revenue nevertheless remained below market expectations.
Total shipments for the quarter were approximately 1.3 million vehicles, up 19% both year on year and quarter on quarter. Nomura estimates that the average selling price fell 4% year on year and 5% quarter on quarter, potentially due to overseas promotions. Management, however, said the third-quarter average selling price should be similar to that of the second quarter.

Third-quarter net profit was approximately 10 billion yuan, up 28% year on year and 22% quarter on quarter, but also below market expectations. Management said foreign exchange losses negatively affected profit.
Gross margin was 18.0%, up 0.4 percentage points year on year but down 0.9 percentage points quarter on quarter. Overseas promotions, rising material costs and a battery consumption tax introduced in September combined to put pressure on margins. Management estimated the battery consumption tax had an impact of approximately 500 million to 600 million yuan during the quarter.
Nomura estimates profit per vehicle at approximately 6900 yuan, slightly above the 6800 yuan recorded in the second quarter. Management reported a wide regional difference: profit per vehicle was approximately 2000 yuan in China and more than 16 thousand yuan overseas.

Management expects overseas sales to grow 20%–30% year on year in 2027, and overseas factories to have annual production capacity of approximately 600 thousand–700 thousand vehicles, including approximately 200 thousand in Hungary and 300 thousand in Brazil. Overseas factory capacity is expected to equal one quarter of total overseas sales that year.
The company said its Hungarian factory will soon begin mass production. Management believes that, if the factory runs smoothly and there are no supply chain issues, local production can save on tariffs and export expenses associated with direct exports and potentially yield higher margins.
Export policy continues to affect overseas expansion: the EU quota for hybrid vehicles has yet to be formally announced, and the company plans to seek as much of the quota as possible. Whether next year's export tax rebate costs are passed on to dealers or overseas consumers will depend on market competition.

Nomura believes persistent oversupply and weakening demand in China's auto industry, together with tightening export policy, could affect BYD's near-term demand and margins. The bank believes more mergers, acquisitions and partnerships are needed to help improve market fundamentals.
Nomura maintains its Buy rating on BYD and its target price of 123 yuan. Company management expects capacity constraints for the Blade Battery 2.0 to be fully resolved in the first quarter of 2027.