BYD's domestic recovery has begun, and overseas growth potential remains large

Overview

This report is Goldman Sachs' company research and conference takeaways following BYD Co.'s 4Q25 results. The report believes that although 4Q25 net profit missed expectations, mainly due to foreign exchange losses and lower government subsidies, operating profit was in line with expectations. Goldman Sachs maintains its Buy rating, with the core view that domestic sales recovery has already begun, while overseas markets are seeing stronger orders amid high oil prices and higher new energy vehicle penetration, which could lead to upside surprises in sales.

Core views

Goldman Sachs expects 1Q26E to be BYD's trough for both sales and net profit, with improvement likely to occur quarter by quarter from 2Q26E through 4Q26E. In China, the company is strengthening its competitive edge through new models, the second-generation Blade Battery, and the flash-charging ecosystem, and management believes industry consolidation will be driven more by product innovation than by price competition. Overseas, the company is maintaining its sales target of 1.5 million units, but there is room for an upward revision; Goldman Sachs forecasts overseas sales of 1.58 million units in 2026E. Over the long term, Goldman Sachs believes the overseas business could become a second growth curve, contributing 83% of incremental vehicle sales in 2025-2030E, while the share of overseas profit contribution may rise from 40% in 2025 to 62% in 2030E.

Analysis framework

The report mainly analyzes 4Q25 results, management communication, 2026E quarterly sales and net profit forecasts, domestic order trends, overseas orders and capacity plans, R&D and capex, balance sheet changes, and the DCF valuation framework.

Methodology notes

• Valuation methodDCF

  12-month DCF target price

  Goldman Sachs uses the DCF method, assuming a WACC of 10.8% and a long-term growth rate of 2.0%, to derive an A-share target price of Rmb137 and an H-share target price of HK$134, with a 10% discount applied to the H share.

• Factor frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  The Goldman Sachs factor framework uses forecast sales, EBITDA, EPS growth, ROE, ROCE, CROCI, and valuation metrics such as P/E, P/B, and EV/EBITDA to calculate percentiles for comparing individual stocks with the market and industry peers.

• M&A frameworkM&A Rank

  Probability score of being a potential acquisition target

  Goldman Sachs rates the probability of a company becoming an acquisition target on a scale from 1 to 3, where 1 represents high probability, 2 medium probability, and 3 low probability; this report discloses the framework but does not show BYD's specific M&A score.

Asset mapping & comparison

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

• 002594.SZ

  Core covered A-share name

  Strengths

  A leading domestic new energy vehicle company with a complete product lineup, in-house technology capabilities, the second-generation Blade Battery, and the flash-charging ecosystem, with clear signs of a domestic demand recovery.

  Weaknesses

  4Q25 net profit missed expectations due to foreign exchange losses, lower government subsidies, and working capital changes; domestic deliveries in 2026E are still expected to merely stabilize.

  Comparison

  A-share target price of Rmb137 implies about +34% upside; Goldman Sachs maintains a Buy rating versus other Chinese auto and auto parts companies in the coverage universe.

  Risks

  Intensifying EV competition, overseas expansion slower than expected, and external battery sales below expectations.

• 1211.HK

  Core covered H-share name

  Strengths

  Benefiting from the same fundamental drivers and overseas growth logic, with the share of overseas profit contribution expected to rise over the long term.

  Weaknesses

  A 10% discount is applied to the H-share target price, and overseas localized production is still in progress, with 2026 overseas sales still mainly export-led.

  Comparison

  The H-share target price is HK$134, versus the report price of HK$104.7, implying about +28% upside.

  Risks

  Lower-than-expected overseas market penetration, regional policy and FX volatility, and intensifying global new energy vehicle competition.

Key data

• March domestic orders+170% MoMOrders from the Dynasty and Ocean networks increased MoM, supporting the view of a domestic recovery.
• 2026E sales forecast5.05mn unitsGoldman Sachs expects 10% YoY growth, driven by stabilizing domestic deliveries and overseas expansion.
• 2026E overseas sales forecast1.58mn unitsGoldman Sachs forecasts 51% YoY growth, above the company's 1.5 million unit target.
• 2026E revenue growth+12%Mainly driven by sales growth.
• 2026E gross margin17.6%Broadly stable, with cost inflation pressure expected to be offset by pricing support from new models and flash-charging technology.
• 2026E R&D expenseRmb63bnHigher than Rmb58bn in 2025, continuing investment in the new energy ecosystem and AI-related technologies.
• 2025 capexRmb157bnOf which about Rmb70bn was related to batteries; the company expects future capex to stabilize at around Rmb100bn.
• 4Q25 net cashRmb19bnBelow Rmb87bn in 3Q25 and Rmb113bn in 4Q24, mainly due to changes in working capital conditions.
• 1Q26E sales forecast702,409 unitsIncluding 381,244 units in China and 321,165 units overseas.
• 4Q26E sales forecast1,849,360 unitsIncluding 1,325,843 units in China and 523,517 units overseas, showing sequential improvement.
• 1Q26E net profit forecastRmb5,028mnThe chart shows 1Q26E as the trough for net profit.
• 4Q26E net profit forecastRmb16,302mnThe chart shows a clear improvement in profitability in the second half.

Impact & implications

The report is mildly positive for BYD's A/H shares: in the short term, recovering domestic orders and accelerating overseas orders should help ease market concerns about sales and earnings; in the medium term, the second-generation Blade Battery, flash-charging network, and overseas capacity rollout strengthen the company's technological and global competitiveness; from a valuation perspective, the 12-month forward P/E for A/H shares is below historical averages, which Goldman Sachs views as attractive.

Risks

• Rising competition in the EV industry may lead to pricing pressure or margin compression.
• Slower-than-expected overseas expansion may affect sales growth and the increase in profit contribution.
• Lower-than-expected external battery sales may weigh on battery business growth.
• Foreign exchange losses, lower government subsidies, and working capital changes may continue to affect net profit and cash balances.
• High capex and sustained R&D investment may pressure free cash flow if conversion efficiency is insufficient.

What to watch

• Whether sales and net profit from 2Q26E to 4Q26E can improve quarter by quarter as forecast.
• Whether the recovery in orders from the Dynasty and Ocean networks can translate into stable deliveries.
• The pace of adding 30-50k units of monthly capacity for the second-generation Blade Battery.
• The progress of the annual target to build 20k flash-charging stations, including 18k urban stations and 2k highway stations.
• Whether the overseas sales target is raised from 1.5 million units, and whether orders in Australia, New Zealand, the Philippines and other markets can remain strong.
• The ramp-up of the Hungarian and other overseas plants after mass production begins in March-April 2026.