The electric vehicle revolution promised unstoppable growth and sky-high profits.
Tesla once led with its futuristic tech and cult-like following. BYD, China’s EV titan, surged past rivals with aggressive expansion and bold pricing. But recent earnings have put question marks over that story.
Profits are slipping, price wars are cutting deep, and even the biggest names are showing cracks. Investors who still see EVs as a guaranteed win need to rethink their positions. Consumers are now beginning to wonder if it’s still worth the hype.
What’s behind Tesla’s faltering appeal?
Tesla’s Full Self-Driving (FSD) software was meant to be a game changer. Instead, it is turning off buyers. A recent survey of over 8,000 US consumers revealed only 14% would be more likely to buy a Tesla because of FSD.
More tellingly, 35% said it made them less likely to buy one. Nearly half want regulators to ban it outright.
This skepticism isn’t just about tech, but more about trust. Tesla’s frequent safety recalls and public controversies surrounding CEO Elon Musk have eroded confidence.
FSD remains unproven at scale and has been linked to accidents.
Many Tesla owners who paid for the software refuse to activate it. The tech, once Tesla’s crown jewel, now feels like a liability. The company’s growth depends heavily on this innovation, but that pillar is shaky.
Tesla’s stock is starting to reflect this sentiment. After a strong start to 2025, shares have dropped 13% this year.
With margins squeezed and brand trust weakening, Tesla faces tougher competition than ever, especially in China where BYD’s rise is eating into its market share.
Why is BYD’s profit tumbling despite rising sales?
BYD reported a nearly 30% plunge in net profit for the second quarter, dropping to 6.36 billion yuan ($890 million). That’s the first quarterly profit decline since early 2022.
Yet, revenues grew 14% year-on-year, reaching 201 billion yuan ($28.1 billion). The disconnect between revenue growth and profit decline reveals a key problem: margins are under severe pressure.
BYD’s gross margin fell from 18.8% last year to 18% in the first half of 2025. While this is still strong compared to rivals like Zhejiang Geely and Chery, the trend is worrying.
The company’s profit was hammered by aggressive price cuts in China, a tactic BYD itself helped spark.
The domestic market’s fierce price war forced BYD to slash prices repeatedly, narrowing its profits.
Source: Bloomberg
Adding to the strain, BYD has sped up payments to suppliers to comply with new government regulations. Faster payments squeeze cash flow and working capital, increasing borrowing, which rose from 28.6 billion yuan to 39.1 billion yuan in less than a year.
At the same time, research and development costs climbed over 50% as BYD invests heavily in batteries and driver-assistance tech.
Overseas sales are a bright spot. BYD’s international revenue surged 50% in the first half of 2025. European registrations jumped 225% in July alone. The company is expanding aggressively in Brazil, Australia, and Europe.
But even this overseas growth is not enough to offset the pressure at home.
Is the price war crippling the EV industry’s economics?
The core issue isn’t just BYD or Tesla but the entire EV sector in China. Retail EV prices have dropped roughly 19% over two years. This price war benefits consumers but destroys profits across the board.
Chinese regulators have warned automakers about “rat-race competition,” where constant discounting endangers supply chains and the reputation of Chinese-made vehicles globally.
The government’s crackdown aims to end unsustainable price cuts that are now routine in the industry.
Legacy automakers are reacting. Porsche recently delayed its full EV transition, returning to hybrids and combustion engines. Opel ditched its 2028 EV-only goal.
The message here is that EV companies that are chasing volume at any cost are hitting a wall. Sustainable profits require more than just aggressive pricing. Without it, even market leaders risk collapse.
Who are the real winners and losers in this market shake-up?
Tesla and BYD remain the biggest names, but both are showing cracks.
Tesla struggles with a damaged brand and questionable technology bets. BYD leads in volume but bleeds profits trying to hold its ground in China’s cutthroat market.
Meanwhile, some legacy automakers benefit by avoiding the fray. They lean on hybrids and ICE vehicles for steady cash flow. These brands are not losing EV relevance but are pacing growth more realistically. This strategy may shield investors from the volatility wrecking Tesla and BYD.
Another key opportunity lies overseas. BYD’s aggressive international expansion shows how global markets can buffer domestic weakness. In Brazil, Europe, and Australia, BYD is gaining market share with competitive pricing and increasing brand recognition.
What should investors take from this upheaval?
The electric vehicle story is no longer about guaranteed exponential growth or unbeatable tech hype. It is a story of hard economic realities setting in. Investors must focus on profitability, balance sheets, and business models, not just sales volume or futuristic features.
Tesla’s FSD troubles reveal how fragile brand strength can be. BYD’s profit squeeze shows that even market leaders can’t escape brutal competition. Price wars erode margins for all players, pushing companies to borrow more and cut corners.
The companies best positioned are those that can grow profitably, control costs, and diversify globally.
BYD’s overseas push is a smart move but carries risks in execution and rising costs. Tesla needs to rebuild trust and deliver on its tech promises to justify premium valuations.
For investors, the EV market is no longer a one-way bet. Careful analysis of margins, cash flow, and competitive strategy is essential. The next phase of EV growth will reward discipline, not hype. Profits will matter more than ever.
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