BYD’s Market Value Plummets Amid Domestic Slump and Cost Pressures

China's premier electric vehicle manufacturer, BYD, is confronting significant headwinds. Investor skepticism has been validated by recent sales data, coming on the heels of a staggering erosion of over $60 billion in market capitalization since May. The central question for stakeholders is whether this represents a temporary setback or a fundamental shift in the company's high-growth trajectory.

The competitive landscape in China, BYD's home market, is becoming fiercely contested. Rival Geely has now secured the number two position in the domestic EV sector. Furthermore, technology giants are making substantial inroads. The Aito brand, leveraging Huawei's technology, reported a surge of over 80% in January deliveries. Xiaomi also entered the fray successfully, moving approximately 39,000 units in its early stages.

Compounding this competitive pressure is a pivotal change in government policy. As of January 1, 2026, China reinstated a 5% purchase tax on new energy vehicles, ending a tax exemption that had been in place for more than a decade. This policy shift has noticeably cooled consumer demand.

A Sharp Contraction in Sales Volumes

The beginning of 2026 proved disappointing for the Shenzhen-based automaker. The company reported the sale of just over 83,200 pure electric vehicles in January, marking its weakest monthly performance in nearly two years. The decline was particularly severe in its domestic market, where local deliveries were nearly halved compared to the same month last year.

Analysts at Morgan Stanley anticipate that industry-wide volumes could decline by 30% to 40% in the first quarter compared to the previous quarter, reflecting the broad impact of the new tax regime.

Should investors sell immediately? Or is it worth buying BYD?

Soaring Input Costs Squeeze Margins

Beyond demand challenges, skyrocketing costs for raw materials are pressuring profitability. A key component for batteries, lithium carbonate, saw its price surge by almost 60% throughout 2025, reaching its highest level since late 2023 by the year's turn. This upward trend persisted into January 2026.

Production expenses are being further driven up by increased prices for copper and aluminum, coupled with persistent shortages of memory chips. Market researchers estimate that these added costs could amount to as much as $1,000 per vehicle for some models. While BYD's vertical integration—including its own battery and parts production—is seen as providing more resilience than many competitors, even the market leader is not immune to these macroeconomic forces.

Valuation and Strategic Outlook

Despite these multifaceted challenges, BYD's equity valuation remains moderate. The shares currently trade at a price-to-earnings ratio of approximately 16, which sits below the three-year average of 18.

Investors are pinning hopes on the company's international growth strategy. Management has outlined plans to boost overseas sales by nearly 25% this year, targeting 1.3 million vehicles. The upcoming quarterly reports will be crucial in determining whether this global expansion can sufficiently offset the domestic softness and rising cost environment.