Maintain BUY. We are of the view that BYD’s 1Q25 results, including all the key metrics, continued to show its high earnings quality, despite the ongoing vehicle model transition. We believe both sales volume and gross margin in 1Q25 are on track to achieve our full-year forecasts. New models, including the Han L, Tang L and Titanium 3, could boost its sales from 2Q25. Although it is possible for BYD to lead another round of price war in 2H25 to maintain its market share, we believe its high earnings quality could help keep its net profit per vehicle above RMB10,000.

Net profit of RMB9,148 per vehicle in 1Q25. BYD’s 1Q25 net profit of RMB9.2bn was in line with its preliminary announcement of RMB8.5bn- 10bn. Gross margin of 20.1% was in line with our prior forecast. R&D expenses of RMB14.2bn in 1Q25 were about RMB1.5bn higher than our projection, which was offset by lower selling expenses and higher forex gains than we had expected.

Both sales volume and gross margin in 1Q25 are on track to achieve our full-year forecasts. We are of the view that BYD’s 1Q25 sales volume is on track to meet our full-year forecast of 5.25mn units. Its 1Q25 gross margin of 20.1% despite rising discounts for inventory clearance of old models is also close to our full-year forecast of 19.7%, taking extra costs from ADAS into consideration. It is also possible for BYD to lead another round of price war in 2H25 given its current inventory level, in our view. Although we do not expect ADAS functions equipped on the Model Year 2025 vehicles to bring significant new demand, BYD’s comprehensive model line-up, leading cost reduction capabilities and new technologies, especially those related to batteries, could make itself well positioned in maintaining its market share in FY25. Overseas sales volume of 0.2mn units (or 20% of total sales volume) in 1Q25 also exceeded our prior expectation.

Earnings/Valuation. We fine-tune our FY25E earnings forecast by lowering average selling price slightly and raising R&D expenses and forex gains a bit, which results in an unchanged net profit of RMB57.5bn. We have also added our FY27E earnings forecasts. We maintain our BUY rating and target price of HK$470 for H share and RMB440 for A share, both of which are still based on 23x (unchanged) our FY25E EPS. Key risks to our rating and target price include lower sales or margins than we expect, and a sector de-rating.