A soft first quarter but better than feared; BYD may be approaching a sentiment-clearing point

Overview

This report is Bernstein's review of BYD Co Ltd's first-quarter results. The core judgment is that Q1 fundamentals were indeed soft, mainly dragged down by lower sales, but profitability was better than market fears. In addition, orders for next-generation flash-charging models were strong, domestic share recovered in March, and overseas markets and external battery sales continued to grow, so this earnings release could become a sentiment-clearing event for the stock.

Core views

The report maintains a positive view on BYD. Short-term pressure comes from declining sales, a notable drop in revenue and net profit, and lower net margin; however, positives include ASP and gross profit support from improved product mix, a higher contribution from premium brands, a higher share of overseas sales, R&D expenses lower than previous periods, and new model orders validating demand resilience. Bernstein believes domestic market share is likely to improve from Q2 as new model deliveries ramp up.

Analysis framework

The report uses earnings decomposition, year-over-year and quarter-over-quarter comparisons, gross margin and profit estimation by business segment, sales and market-share tracking, new model order observation, verification through overseas registration volumes and battery installation/shipment data, and combines this with an SOTP valuation framework to derive the target price.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  The report values BYD by segments including the EV business, battery business, handset components and assembly business, and semiconductor business, then sums them to derive BYD's target price.

• Valuation methodsDCF

  discounted cash flow

  Both the EV business and battery business use DCF as one of the valuation references to reflect long-term cash flow generation capability.

• Valuation methodsP/E

  price-to-earnings valuation

  The report maps the SOTP result to about 18x 2026E P/E and uses P/E to assess the EV and battery businesses.

• Valuation methodsEV/Sales

  enterprise value/sales

  The EV business also references the EV/Sales method, using revenue scale and comparable valuations as supplementary indicators.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 002594.CH / 002594.SS

  A-share listed entity; the report assigns a target price of RMB 124.00

  Strengths

  Strong orders for new flash-charging models, a higher mix of premium brands and overseas sales, quarter-over-quarter improvement in EV and battery gross margin, and growth in external battery sales.

  Weaknesses

  Q1 revenue, net profit, and sales volume all declined significantly; net margin fell to 2.7%, and net profit per vehicle remained below the same period last year and the previous quarter.

  Comparison

  A-shares may be more affected than H-shares by differences in China's capital market policies and market rules.

  Risks

  Sales below expectations, product quality and recalls, worsening competition, technological disruption, and adverse policy.

• 1211.HK

  H-share listed entity; the report assigns a target price of HK$136.00 and 31% upside

  Strengths

  The target price corresponds to an Outperform rating; overseas growth, product mix, and the new model cycle are the main supports.

  Weaknesses

  Absolute performance over the past 12 months was -16.2%, lagging ASIAX on a relative basis.

  Comparison

  The report table shows that 1211.HK closed at HK$103.70 as of 2026-04-28, versus a target price of HK$136.00.

  Risks

  Shares the same fundamental risks as A-shares, while also being affected by Hong Kong market risk appetite.

Key data

• Q1 2026 revenueRMB 150.2bnDown 11.8% year over year and 36.8% quarter over quarter.
• EV and battery revenueRMB 116.8bnDown 12.5% year over year and 35.6% quarter over quarter.
• Q1 2026 net profitRMB 4.0bnDown 57.5% year over year and 57.9% quarter over quarter; net margin 2.7%.
• Blended gross margin18.8%20.1% in Q1 25 and 17.4% in Q4 25.
• Estimated EV and battery gross margin22.5%23.9% in Q1 25 and 21.6% in Q4 25, supported by product mix improvement.
• Passenger vehicle sales689k unitsQ1 2026 down 30.1% year over year and 48.1% quarter over quarter.
• Net profit per vehicleRMB 5.7kAbove the market expectation of about RMB 4k, but below RMB 8.8k in Q1 25 and RMB 6.8k in Q4 25.
• Overseas sales mix46.6%20.9% in Q1 25 and 26.2% in Q4 25.
• Premium brand sales mix12.4%5.3% in Q1 25 and 12.3% in Q4 25; includes Denza, Fang Cheng Bao, and Yangwang.
• Domestic EV market shareRecovered to 23% in MarchIt had fallen to 19% in January-February; the report expects improvement from Q2 as new model deliveries ramp up.
• New model orders61,240 orders for Song Ultra in the first month; 30,000 orders for Da Tang in 24 hoursThe report believes order momentum for new models equipped with flash-charging capability is strong.
• Q1 2026 total battery shipments60 GWhUp 14% year over year; in January-February 2026, external battery supply accounted for about 36% of total shipments, up more than 62%.
• R&D expensesRMB 11.3bnLower than RMB 14.2bn in Q1 25 and Q4 25; the report notes that capitalization details were not disclosed.

Impact & implications

If new model orders can be converted into deliveries, and domestic share begins to recover steadily from March, the market may reprice BYD's near-term earnings pressure. Overseas expansion, a higher mix of premium brands, and growth in external battery supply are key supports for medium-term improvement in the earnings structure; however, current results still show that sales volume and margins remain highly sensitive to industry competition, product cycles, and expense changes.

Risks

• Sales below expectations.
• Product quality issues and potential recalls.
• A worsening competitive landscape, especially price and product competition in China's EV market.
• Risk of technological disruption.
• Unfavorable government policy.
• A-shares may be more volatile than H-shares and are affected by China's economy and capital market policies.
• Q1 R&D capitalization details were not disclosed, and earnings quality still needs to be monitored.

What to watch

• The speed at which orders for new flash-charging models convert into deliveries.
• Whether China's EV market share continues to recover from Q2.
• Growth in overseas registrations, especially in Europe, LATAM, and ASEAN.
• Whether the share of shipments to external battery customers and ESS projects can continue to rise.
• The sales mix of premium brands Denza, Fang Cheng Bao, and Yangwang.
• Whether EV and battery gross margin can sustain quarter-over-quarter improvement.
• Changes in R&D expenses, capitalization ratio, and expense ratio.