BYD shares dropped nearly 5% in Hong Kong following Friday's mid-year earnings release. While the electric vehicle giant managed to break a five-quarter losing streak, the rebound was driven by booming international sales—now more than half of total revenue—which offset a sharply slowing Chinese market. The milestone marks a structural shift for a company that built its scale on the world's largest EV market, and it comes at a moment when the entire Chinese auto industry—domestic and foreign players alike—is grappling with slowing demand and intensifying price competition.

The company's mid-year figures show overseas revenue jumped 34% to $27 billion, accounting for more than 50% of its total business. That international expansion cushioned a painful 31% decline in Greater China.

The domestic price war still weighed on the bottom line, dragging total first-half revenue down 7.1% to 344.8 billion yuan ($51 billion) and cutting shareholders' net profit by 20.5% to 12.3 billion yuan ($1.8 billion). However, data from Citi show BYD's second-quarter net profit surged 30% year-over-year to 8.2 billion yuan, roughly $1.2 billion.

Overseas progress despite geopolitical risks

BYD has faced intense pressure at home from fierce competition with companies such as Geely and Xiaomi. With government subsidies drying up, the automaker has pushed hard into Europe and other global markets to sustain growth.

Its expanding foreign footprint coincides with escalating global trade friction, particularly protectionist policies in Europe designed to shield the region's domestic automotive sector from Chinese competition. In its latest earnings report, the company acknowledged that the global market has become far more complicated amid rising political tensions, and noted that weak consumer demand in China, aggressive local competition, and rising costs for commodities, raw materials, and semiconductors have heavily compressed its profit margins. Following the report's release, the stock fell almost 5% in Hong Kong.

Even so, BYD outpaced Tesla in total EV sales for the first six months of the year, despite slowing sales at home in China. Overseas revenue constituted the majority of BYD's first-half sales for the first time, supported by a 68% increase in exports to 792,000 vehicles. Looking ahead, the automaker is also counting on its Denza brand to build a stronger position in Europe's premium segment and counter price competition in China.

A difficult road ahead

Overseas growth provides a buffer against weakness in China, but BYD's international expansion faces challenges: higher shipping costs, trade barriers, tariffs, regulatory hurdles, and growing scrutiny from governments concerned about the impact of Chinese EV imports on local manufacturers—factors that may limit its international growth rate. Part of the industry's response has been to localize production: BYD has been building manufacturing capacity abroad, including plants in Thailand and Brazil and a planned facility in Hungary, an approach that can help it work around import tariffs but adds capital costs and execution risk.

The sharp decline in domestic revenue also underscores the pressure on the core of the business. BYD may need to balance aggressive overseas expansion with efforts to protect margins in China. As international sales offset weak domestic demand, investors are increasingly concerned the strategy may not deliver sustainable profit growth as competition and trade barriers intensify.

Foreign carmakers also struggling in China

Beyond BYD, legacy foreign automakers are also suffering a sharp reversal of fortune in China, a market that previously fueled decades of exponential growth. Second-quarter data reveal a severe downturn, with Chinese sales at Volkswagen, Mercedes-Benz, BMW, and Porsche plunging between 30% and 41% year-over-year.

All of these automakers posted year-on-year drops in Chinese revenue of more than 20% during the first half. The steep declines compressed their global profitability, effectively erasing financial gains achieved in other international markets. According to independent auto analyst Lei Xing, German carmakers just experienced some of their most severe quarterly sales contractions on record in China.

Some analysts attribute the weakness to Chinese drivers now viewing once-popular foreign cars as too expensive and out of touch. Even U.S. giant General Motors is feeling the pain: the company once generated $2 billion a year in profit from China, but has lost significant money there over the last two years.

Chinese regulators are also clamping down on the auto industry, promising rigorous audits of rapid development cycles to prevent safety compromises in newly released models—a regulatory emphasis that is also deterring foreign and local carmakers.

While Chinese manufacturers increasingly rely on European hybrid sales, the European Union has been considering new tariffs on Chinese hybrid vehicles. This regulatory headwind builds on existing EU penalties on pure-electric imports—tariffs that countries such as Brazil and Mexico have also adopted to curb the influx of Chinese automotive goods.