BYD's 26Q1 gross margin beat expectations, with overseas sales providing the key support

Overview

This report is UBS's quick review of BYD Company Limited's 26Q1 results. UBS believes that although domestic NEV sales were weak, total sales declined, capacity utilization came under pressure, and the quarter included a one-off foreign-exchange loss of about RMB2.0bn, the company's reported net profit of RMB4.1bn was still better than the market's previously lowered expectations. The core conclusion of the report is that strong overseas sales lifted average selling prices and gross margin, while batteries—especially the energy storage business—may also contribute incremental gross profit through external demand.

Core views

UBS's core view is positive. First, 26Q1 net profit exceeded the market expectation level of about RMB3.0bn, and although net profit per vehicle was lower than FY25, it remained resilient. Second, accelerating exports were the main driver of the quarter's better-than-expected gross margin, with overseas sales contribution reaching a record high of 46%; excluding BYDE, quarterly vehicle ASP rose from about RMB140k in FY25 to about RMB160k. Third, new model orders were strong, with DaTang receiving more than 30k orders within 24 hours of launch and Song Ultra receiving more than 60k orders in its first month. Fourth, energy storage batteries won international project orders, indicating improving technological recognition and broader overseas application of BYD's ESS solutions.

Analysis framework

The report uses methods including earnings comparison, quarter-over-quarter and year-over-year analysis, sales and profitability breakdown, observation of overseas sales mix, and valuation and forecast return calculations. UBS compares actual 26Q1 net profit, gross margin, sales volume, profit per vehicle, and export mix against historical quarters, FY25 levels, 2026 market consensus, and UBS forecasts, and values the EV and battery businesses separately using the SOTP method based on EV/revenue.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  UBS uses the SOTP method to value BYD's business segments, applying 0.9x 2027E EV/revenue to the EV business and 1.0x EV/revenue to the battery business, then subtracting net debt and minority interests to derive equity value.

• ratingForecast Stock Return

  forecast stock return

  UBS defines forecast stock return as the expected price upside over the next 12 months plus the total dividend yield. In this report, forecast price upside is 23.4%, forecast dividend yield is 0.5%, and forecast stock return is 23.9%.

• financial_analysisquarterly earnings review

  quarterly earnings review

  The report compares 26Q1 against previous quarters and market expectations across metrics such as sales volume, revenue, gross profit, expenses, operating profit, net profit, net profit per vehicle, and profit margins.

Asset mapping & comparison

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

• 1211.HK

  core covered stock

  Strengths

  Record-high overseas sales contribution, QoQ recovery in vehicle gross margin, resilient profit per vehicle, strong new model orders, and rising international ESS orders.

  Weaknesses

  Total 26Q1 sales volume declined significantly both QoQ and YoY, net profit fell 55% YoY, domestic EV sales were weak, and capacity utilization was low.

  Comparison

  26Q1 net profit exceeded investors' expectation of about RMB3.0bn; overall gross margin of 18.8% was above the previous quarter's 17.4%; export sales volume grew 56% YoY, far better than the 30% YoY decline in total sales volume.

  Risks

  Changes in NEV policy, volatility in key raw material prices such as lithium, steel, rubber, and cobalt, industry competition, and price and sales pressure caused by overcapacity.

• BYDE

  subsidiary/related profit item

  Strengths

  Included as part of BYD's business system in the profit breakdown.

  Weaknesses

  26Q1 BYDE attributable profit showed a significant decline in the table.

  Comparison

  The report excludes BYDE when estimating vehicle ASP to more accurately observe pricing changes in the auto business.

  Risks

  Volatility in the electronics and components business may affect the group's profit breakdown.

• ESS batteries

  growth-driving business

  Strengths

  External energy storage battery sales may contribute several hundred million RMB in gross profit, and the business secured a 2.6GWh order for Grenergy's Central Oasis project in Chile.

  Weaknesses

  The report does not separately disclose a full breakdown of ESS revenue and gross profit, so the contribution remains a UBS estimate.

  Comparison

  While EV sales declined 30% YoY, battery installations grew 15% YoY, indicating that external battery demand may offset part of the pressure from weaker vehicle sales.

  Risks

  Overseas project delivery, technological competition, raw material prices, and cyclical fluctuations in energy storage demand.

Key data

• 26Q1 net profitRMB4.1bnDown 56% QoQ and 55% YoY, but above investors' expectation of about RMB3.0bn.
• 26Q1 sales volumeabout 700,463 unitsDown 48% QoQ and 30% YoY.
• Overall 26Q1 gross margin18.8%Up 1.4ppt QoQ and down 1.3ppt YoY.
• Estimated vehicle gross margin23.4%Down 0.4ppt YoY and up 1.9ppt QoQ, mainly driven by the higher overseas sales mix.
• Overseas sales contribution46%Reached a record high; export sales volume was about 321,165 units, up 56% YoY.
• Quarterly vehicle ASPabout RMB160kEstimated excluding BYDE, above about RMB140k in FY25.
• Battery installations60GWhWith BYD EV sales down 30% YoY, battery installations still grew 15% YoY; UBS estimates external ESS battery sales contributed several hundred million RMB in gross profit.
• R&D capitalizationRMB2.3bnStill below 20% of total R&D expenses.
• Target priceHK$128.00Based on SOTP valuation, implying 23.4% upside from the current price of HK$103.70.
• 2026E P/E21xThe report states that BYD-H is currently trading at 21x 2026E P/E based on UBS estimates.

Impact & implications

The report has a positive implication for BYD's H shares: although short-term earnings were dragged down by domestic demand, seasonality, and foreign-exchange losses, overseas sales, higher ASP, and external orders for energy storage batteries buffered the pressure on profits. If export mix and the ESS business continue to improve, the market may focus more on the company's improved earnings structure and international expansion rather than just fluctuations in domestic NEV sales.

Risks

• Favorable policies supporting new energy vehicles may change.
• Sudden fluctuations in the prices of key raw materials such as lithium, steel, rubber, and cobalt.
• Intensifying competition in the new energy vehicle market.
• Macroeconomic volatility affecting automobile demand.
• Changes in the policy environment for the auto industry.
• Price and sales pressure caused by overcapacity.
• Exchange-rate fluctuations may continue to affect profit performance.

What to watch

• Whether the overseas sales mix can remain at a high level, especially demand in Europe, Australia, and ASEAN.
• Whether orders for new models such as DaTang and Song Ultra can translate into sustained deliveries and profitability.
• Progress of external ESS battery orders and international project execution.
• Changes in domestic NEV price competition and the policy environment.
• Changes in raw material prices, especially lithium, steel, rubber, and cobalt.
• Whether gross margin and net profit per vehicle in subsequent quarters can sustain the resilience seen in 26Q1.
• Whether 2026 earnings forecasts and market consensus will be adjusted further.