Is BYD, China's Flagship EV Maker, the Next Evergrande?

Japan Forward

10-07-2025

Since Chinese leader Xi Jinping classified electric vehicles as a pillar of China's "new quality productive forces" and a key sector in which China could surpass the rest of the world, the country's EV industry has enjoyed aggressive state support. Leading the charge is BYD, the dominant force in China's electric car sector, which has expanded globally with remarkable speed. For a time, it seemed nothing could stop BYD's meteoric rise.
However, since the end of May, rumors have surfaced online that BYD might be the next major Chinese corporate implosion — China's automotive equivalent of Evergrande. Is this just online speculation, or is there truth behind it?
One Chinese economist analyzed BYD's financials and reached a shocking conclusion: since 2022, BYD has operated under a zero-profit strategy, a business model that is inherently unsustainable. If BYD's annual sales growth falls below 16%, the company could collapse overnight — and potentially drag the entire EV industry down with it.
Let's examine how this conclusion was reached.
Before delving into financial figures, one must first consider a widely criticized aspect of BYD's operations: its unusually long supplier payment terms. While international automakers typically pay suppliers within 45 to 60 days — Tesla, on the longer end, within 90 days — BYD's average payment period in 2023 stretched to a staggering 275 days.
How many suppliers can withstand or are willing to tolerate such a delay? This practice, which effectively suppresses BYD's debt ratio by exploiting suppliers, raises serious questions about how sustainable its business model really is.
To understand the full picture, we must also uncover the secrets hidden in BYD's financial statements.
According to BYD's 2024 financial report, the company posted a net profit after tax of 41.6 billion yuan ($5.82 billion USD) — a remarkable 32.9% increase year over year. Its total revenue reached 777.1 billion yuan ($108.37 billion), resulting in a net profit margin of 5.4%. For an industrial enterprise in China, this is already an outstanding result. Most Chinese industrial firms operate with net margins of only around 2%, making BYD appear far ahead of the pack.
But a puzzling contradiction emerges: if BYD's profits are so strong, why does it stretch supplier payments so aggressively? Typically, high profits and delayed payments are mutually exclusive. In general business logic, prolonged payables suggest liquidity constraints or operating losses, not robust profits.
So why is BYD breaking this logic? A drone view shows BYD electric vehicles (EV) before being loaded onto the "BYD Explorer No1" for export. (©China Daily via Reuters)
As an automaker, BYD's core profits come from vehicle sales. In 2024, BYD reported total revenue of 777.1 billion yuan ($108.37 billion), of which 533.3 billion yuan ($74.66 billion) — or 68.2% — came from vehicle sales. Other income sources include automotive parts and smartphone components. The company sold 4.27 million vehicles during the year. Dividing vehicle revenue by units sold gives us a per-unit sales revenue of 124,900 yuan ($17,486).
What about the cost of producing each car?
Although BYD doesn't explicitly state this, it can be estimated. In 2024, revenue from vehicles and auto parts totaled 617.4 billion yuan($86.44 billion). Of this, vehicle sales made up 86.4%. The total operating cost for vehicles and parts was 479.7 billion yuan ($67.16 billion). Assuming production efficiencies are consistent across both areas, we multiply 479.7 billion by 86.4%, resulting in an estimated vehicle production cost of 414.4 billion yuan ($58.02 billion). Divide that by 4.27 million units, and we get a per-unit pre-tax production cost of 97,000 yuan ($13,580).
In 2024, BYD's total tax paid amounted to 52.7 billion yuan ($7.38 billion). Assuming the same 68.2% allocation applies to the auto business, tax attributed to vehicle sales would be about 35.9 billion yuan ($5.03 billion). Dividing that by 4.27 million vehicles, we get an average tax burden of 8,400 yuan ($1,176) per vehicle.
Adding this to the production cost, the full per-vehicle cost — including tax — is 105,400 yuan ($14,756).
So, comparing that to the per-vehicle revenue of 124,900 yuan ($17,486), BYD appears to enjoy a per-car profit of 19,500 yuan ($2,730) — a healthy 15.6% profit margin.
But if the profit margin is indeed that high, why the need to delay payments to suppliers for nearly 9 months?
To answer that, we must examine BYD's operating capital, defined as current assets minus current liabilities. This number indicates whether a company has the liquidity to meet its short-term obligations.
Typically, operating capital fluctuates within a modest range. A positive value signals healthy debt repayment capacity, while a negative one suggests financial stress.
Up until 2021, BYD's operating capital hovered around ±5 billion yuan ($700 million), with most years in the red. That's not alarming, just indicative of tight cash flow. But starting in 2022, a dramatic shift occurred: BYD's operating capital plunged to -92.5 billion yuan ($12.95 billion) —a figure far beyond historical norms and indicative of severe liquidity strain.
In theory, such a massive negative value suggests that the company is hiding costs within its current liabilities while still declaring large profits. And indeed, BYD claimed 17.7 billion yuan ($2.48 billion) in profits for 2022, up 3.4 times from the previous year, despite a worsening liquidity position.
In 2022, BYD became the undisputed leader in China's EV market, selling 1.87 million vehicles and claiming 27.1% market share. But the anomaly in its operating capital points to a deeper issue.
If an enterprise's operating capital shows a sharp negative turn while profits allegedly surge, it often means the company is using accounting tricks — such as delaying supplier payments or using commercial paper — to hide real costs under liabilities.
Between 2022 and 2024, BYD's distorted operating capital figures essentially represent hidden production costs. To uncover the real cost per vehicle, we must reallocate these hidden costs.
In 2024, the negative capital position stood at 125.4 billion yuan ($17.56 billion). Applying the 68.2% vehicle revenue ratio, 85.5 billion yuan ($11.97 billion) can be attributed to car production. Divided by 4.27 million units, this adds 20,000 yuan ($2,800) per car in hidden costs.
Therefore, the true cost of producing each vehicle is not 105,400 yuan ($14,756), but 125,400 yuan ($17,556).
Here lies the bombshell: BYD's per-unit revenue is 124,900 yuan ($17,486), while its real cost per vehicle — after hidden costs — totals 125,400 yuan ($17,556). The difference is just 500 yuan ($69.73), or 0.4%, a margin of error small enough to be statistically insignificant.
This can only mean one thing: since 2022, BYD has been operating under a zero-profit model.
Its competitive advantage in battery manufacturing gives it slightly lower production costs than rivals. By eliminating profits, it forces competitors to operate at a loss, squeezing them out of the market.
This explains the ongoing "price war" in China's EV sector — and why the entire industry appears unprofitable. BYD's zero-profit strategy is the hidden force behind the chaos.
Zero-profit sales are risky and often sit on the edge of antitrust or unfair competition laws. To maintain this strategy, BYD must conceal the truth by inflating current liabilities, giving the illusion of profitability.
But this comes at a cost. The model only works if BYD can continuously expand revenue to cover essential expenses like depreciation and R&D.
In 2024, BYD's fixed assets totaled 262.3 billion yuan ($36.72 billion). Assuming an average depreciation period of seven years, annual depreciation equals 33.2 billion yuan ($4.65 billion). On top of that, R&D expenses reached 54.2 billion yuan ($7.59 billion).
This means to sustain operations, BYD's revenue must grow by at least 87.4 billion yuan (33.2 billion yuan+54.2 billion yuan, or $12.24 billion in USD) in 2025. That amounts to a 16.4% year-over-year increase. This is BYD's red line. Fall below this growth rate, and the company's fragile model begins to unravel.
In May 2025, BYD sold 382,500 vehicles — up 15.3% from 331,800 a year earlier. This falls below the critical 16.4% threshold. If this trend continues for another two months, BYD could face systemic failure.
That's the ultimate price of zero-profit operations.
And BYD won't fall alone. It could drag down its entire supply chain — from battery makers to component suppliers and rival EV brands. When that happens, will the Chinese government really have the resources — or the political will — to rescue a company that has spent years distorting market competition?
Maybe we cannot rule it out. But just as the Chinese Communist Party(CCP) failed to save Evergrande or stabilize the real estate market, I don't believe it has the capacity to bail out the EV industry either.
In many ways, both Evergrande and BYD are classic examples of CCP-style companies. They expanded recklessly and used unethical tactics to squeeze out competitors. But can this model really last forever?
I believe Evergrande has already given us the answer.
Author: Jennifer Zeng
Find Jennifer Zeng's articles on JAPAN Forward . Follow her on X (formerly Twitter) and on her blog page, Jennifer's World .