Can BYD Still Become the Future Toyota I Bought?

I bought BYD as a future Toyota thesis. Now Hungary, overseas margins, and cash flow matter more than export volume.

Automobile Industry Exhibition, Shanghai, China

BYD ended 2025 by telling shareholders that China is no longer enough

I own BYD, and this piece is a check on whether the reason I own it still holds.

I did not buy BYD because I thought it would post a neat set of annual results in one particular year. I bought it because I thought it might become something much rarer: a globally localised, cycle-resilient, structurally profitable auto-industrial platform with the scale, staying power, and foreign industrial presence that make the Toyota comparison worth taking seriously. It is the same lens I use across the rest of my portfolio, which I laid out in How I Invest My Own Capital.

BYD sold 4.60 million new-energy vehicles in 2025, exported more than 1 million of them, and lifted revenue to just over RMB 804 billion. On the surface, that still looks like a company scaling.

Underneath it, the year tightened. Gross margin fell to 17.74 percent from 19.44 percent. Net profit fell 18.97 percent to RMB 32.6 billion. Operating cash flow dropped from RMB 133.5 billion to RMB 59.1 billion. Capex jumped to RMB 156.8 billion. Borrowings rose from RMB 28.6 billion to RMB 113.4 billion.

The Toyota comparison demands more than scale. It does not mean BYD gets huge and keeps shipping cars out of China. It means BYD becomes the sort of company that can build at scale across regions, make decent money through a cycle, localise production when politics harden, absorb tariffs and price wars without breaking the balance sheet, and keep compounding because the industrial system underneath it is real.

What management is saying is revealing

Management is clear on one point: the domestic market is brutal. BYD's 2025 annual report describes domestic competition as having entered a "fever pitch" and a brutal "knockout stage" — unusually direct language for a corporate filing. Beijing is signalling the same thing: regulators have moved to curb destructive price competition and below-cost selling in autos. That tells me the company knows the home market is now a stress test, not a comfortable source of compounding.

Second, overseas is not just a volume story. It is an economics story. Overseas revenue rose 40 percent to RMB 310.7 billion while China revenue fell 11.2 percent to RMB 493.2 billion. Overseas now accounts for roughly 38.7 percent of group revenue, up from roughly 28.6 percent a year earlier. Management also confirmed that overseas profitability is structurally stronger.

Those two facts together are enough to tell me the direction is right. The magnitude is the hypothesis I am watching.

I want to be careful with that.

Management commentary is not segment disclosure. BYD does not yet report overseas as a separate segment, which means I cannot verify the full economics directly from the filing. What I can say is that the revenue mix shift is real, the directional commentary is consistent, and the hypothesis makes industrial sense in markets where BYD is not fighting a domestic price war. The first clean test will be whether BYD breaks out an overseas segment in the 2026 interim results. If that happens, the hypothesis becomes a fact or a disappointment. Until then, it is the part of the thesis I watch most carefully.

If that profitability gap holds as the business scales and localises, overseas is not just the faster-growing segment. It becomes the part of BYD that could simultaneously be more profitable and more durable — insulated from domestic pricing dynamics by geography and brand positioning.

That leaves China as the base case: still dominant, still under pressure. And overseas as the part of the thesis that has to prove itself.

You could reasonably argue that BYD does not need to pass this test at all — that a company selling nearly five million vehicles a year with vertical integration and deep cost advantages can compound perfectly well as a domestic champion that exports on the side. That is a defensible case, and it may turn out to be the right one. But it is not the case I am underwriting. What I bought was the potential for something rarer: a company that can build durable economics in foreign markets, not just ship volume into them. If BYD turns out to be only a domestic champion, it will still be a good company. It will not be what I paid for.

Third, management is signalling that the build-out will take precedence over distributions. The proposed 2025 dividend was RMB 0.358 a share, down from RMB 3.974 in 2024, and management tied the cut to operating cash flow and future development needs. As a long-term shareholder, I think that is the right call. This phase has to be funded, not wished into existence.

What management is doing matters more than what it is saying

Global ambition is cheap. Industrial proof is not.

What I look for when I read a chairman’s letter is the gap between what management emphasises and what the numbers actually show. Wang Chuanfu’s language — “fever pitch”, “knockout stage” — is significant not because it is alarming, but because it is honest. It is a chairman telling shareholders that the home market no longer offers a comfortable base from which to fund overseas expansion. That forces you to ask a different question: if domestic economics weaken further, can the overseas business grow fast enough and profitably enough to absorb the pressure? That question is what this piece is really about.

BYD is starting to supply the industrial proof: trial production commenced at the Szeged, Hungary plant in January 2026, with full series production scheduled for Q2 2026 — the first locally manufactured European BYD. The Brazil plant is operational. Cambodia is in progress. Turkey’s 150,000-unit plant is scheduled to open by end-2026, and Spain is under active evaluation as a third European site, favoured for its clean energy infrastructure and manufacturing cost base. The company now runs eight roll-on/roll-off vessels and has established a European headquarters in Hungary.

That is not proof on its own. It is a footprint. Anyone can export. The Toyota test is whether exports turn into factories, suppliers, service networks, and local political staying power. That is a harder path than SAIC’s MG-style push into Europe, and more self-built than Geely’s ability to lean on Volvo’s foreign industrial base. What makes BYD’s path distinctive — and more fragile — is that it is building the industrial infrastructure itself, from shipping to charging to assembly, without an acquired brand to backstop the learning curve.

That is also why capex matters. BYD spent RMB 156.8 billion in 2025 on overseas plants, proprietary shipping, charging infrastructure, energy storage, and R&D simultaneously. The bear case is that management is trying to build five moats at once and cannot fund them all without the domestic cash engine running at full pressure. The bull case is that this is what a real moat often looks like while it is being constructed.

The 2026 test for the Hungary plant is not whether it produces cars. Trial production has already started.

The real test is whether it runs at a utilisation rate and cost structure that can compete with Chinese production after European labour and logistics costs are taken into account. Underutilised overseas plants drag margins. If Hungary starts reporting at meaningful capacity — initial design is 150,000 units, scalable to 300,000 — before the domestic business stabilises, the thesis gains a genuine second leg.

For me, localisation does not mean putting pins on a map. It means local suppliers, after-sales capability, political acceptability, demand that holds up without brute-force discounting, and eventually economics good enough to survive tariffs or policy tightening.

The strategic direction only matters if BYD can export a platform, not just cars

BYD’s technology roadmap matters only if it helps the company win outside China — in markets with weaker charging infrastructure and harder politics.

Fifth-generation DM and longer-range PHEVs matter because large parts of the world still do not have the charging infrastructure that makes pure EV ownership easy. Management is pushing larger-battery PHEVs with up to 210km of pure-electric range and more than 2,100km of combined range. That is aimed at markets where charging is patchy and drivers still need ICE-like convenience. It is a product designed for the world as it actually exists, not the world as EV evangelists wish it did.

The individual technologies — Super e-Platform, flash charging, the second-generation Blade Battery, Gods Eye — are not the point. Management is bundling them: charging speed, battery range and durability, driver intelligence, local assembly, and shipping control, packaged as a single offer that is harder to replicate than any one feature. If you are a competing OEM, you do not get to pick which part to match. I explored a related policy-to-cashflow angle in 50,000 Factories: What China’s AI Mandate Means for My Portfolio, where BYD also appears as part of the EV manufacturing and automation build-out.

One reason BYD might become more resilient than a normal carmaker is that it may not end up being only a carmaker. The company delivered more than 60GWh globally in 2025, ranked first worldwide in energy storage system shipments, and won the 12.5GWh Saudi Electricity contract. That is enough to tell me energy storage is not a side business. What I still cannot see clearly is the economics. Because storage sits inside the broader auto segment disclosure, I cannot tell whether it is already a margin enhancer, a temporary drag while the business scales, or simply too small to matter yet. Management has given me enough to be intrigued and not enough to underwrite. That is the real gap.

Premiumisation matters too, but I want to be disciplined about it. Yangwang, DENZA, and FANGCHENGBAO together approached 400,000 units in 2025 and more than doubled. That is encouraging. It is not yet the same as saying BYD has become a premium company. It has become a company that also sells some premium cars, which is a different sentence.

What 2025 actually changed for me

The annual report did not kill the thesis. It raised the hurdle.

Before this report, I could still tell myself a simpler story: China scale first, exports later, and operating leverage eventually doing the rest. I do not think that is the story any more.

The domestic business weakened, cash flow deteriorated, capex surged, and borrowings nearly quadrupled. Those numbers do not decide the thesis on their own. But they leave management with far less room for strategic error.

I remain invested because BYD has already proved enough to keep the thesis alive. But from here, the next leg has to be earned.

How I am positioned — and what would change that

BYD currently represents approximately 2 percent of my growth portfolio, with additional indirect exposure via the Hang Seng Tech ETF. The combined position is meaningful but not yet sized to reflect full conviction — which is deliberate.

My current approach is to use cash-secured short puts to build toward the position gradually, targeting a lower entry point if the stock comes in to a price that reflects more of the execution risk now visible in the 2025 numbers. If management continues to execute as I expect — overseas volume growing, Hungary demonstrating viable localised economics, and cash flow recovering from what looks like a trough year — I would be comfortable growing the combined growth portfolio stake toward 5 percent over time.

The sizing logic is straightforward: the thesis is intact but unproven at the critical overseas step. A 2 percent position reflects a live hypothesis. A 5 percent position would reflect a thesis entering confirmation. I am not going to 5 percent until I can see the overseas economics in the numbers, not just in management commentary.

The mechanism — short puts rather than direct purchase — is not about being clever. It is about being paid to wait at a price I would genuinely be happy to own more stock at. If the puts expire worthless, I collect premium while the thesis develops. If I get assigned, I own more BYD at a price that builds a larger margin of safety into the position. Either outcome works for me.

If Hungary is approaching 100,000 units of annualised production before Q3 2026, or if BYD breaks out energy storage as a reportable segment, I would treat either as a signal to build the position faster.

What would make me reduce is more specific: overseas revenue share continuing to rise while operating cash flow stays depressed. Revenue mix shifting while cash does not follow is not a healthy transition. It is a sign the overseas business is absorbing costs faster than it is generating returns. At that point, patience stops being a thesis and starts being a habit.

What would make me believe more — and what would kill the thesis

I do not need BYD to look perfect in 2026 or 2027. I need the future path to become more legible.

In practical terms, I want to see three things in the numbers: overseas revenue per vehicle holding up as volume scales, at least one overseas plant moving from symbolic output to economically meaningful utilisation, and operating cash flow recovering without another stretch in supplier payables.

The kill condition is not that China stays difficult for another year. China probably will stay difficult.

The kill condition is that BYD keeps growing abroad and still fails to become more resilient — that overseas volume expands but overseas margins compress toward domestic levels as price competition follows the brand into new markets, or that localisation turns into a permanent cost burden rather than a moat. If that happens, the thesis is not early. It is wrong.

What I think now

The real question is not whether BYD can sell more cars abroad. It is whether it can become locally durable there.

The forward signals I am watching: the Szeged plant’s capacity utilisation in the Q3 2026 interim report — if it begins approaching 100,000 units annualised without a margin deterioration narrative attached, that is the first localisation proof point. And separately, whether BYD breaks out energy storage as a reportable segment in the 2026 interims. If it does, the platform thesis has enough commercial weight to require standalone disclosure. If it does not, I will continue to treat storage as optionality rather than underwriting it as a value driver.

A future Toyota is not just a company that can export everywhere. It is a company that can belong everywhere.

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As of the date of publication, I hold positions in BYD Company (HKEX: 1211) and Hang Seng Tech ETF (Xetra: H4ZX). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.