Volkswagen is planning to cut 100,000 jobs. BYD is exporting vehicles around the world at record pace, contributing directly to the employment apocalypse at Volkswagen. Yet shareholders in both companies are down about 20% over the past year in dollars.
It’s a great time to be in the market for a new car, but it’s a very dangerous period for those trying to pick stocks in this sector.
The shocking news of such extensive restructuring at Volkswagen is yet another example of the writing on the wall for industrial production in Europe. EU policies have made it nearly impossible to achieve cost-effective manufacturing on the continent. With EU policymakers no doubt scrambling to find new and innovative ways to unsuccessfully regulate themselves out of pending disaster, European manufacturers are being left out in the cold.
Will supply chains be forced to move east in years to come, with Europe becoming a design hub rather than a production line? We don’t know yet, but the deindustrialisation of Europe is a theme that looks set to accelerate from here.
It’s not hard to see why Volkswagen’s share price is in the doldrums. But why is BYD struggling?
A cursory look at BYD’s numbers for the six months to June 2026 may shock you. Despite the company making waves in international markets, group revenue fell 7% for the period. Earnings per share declined by 21%, making the share price move a lot easier to understand.
The problem isn’t the international markets, which have been an incredible growth engine for BYD. The rapid gains in market share have taken BYD to a point where it generated almost 38% of group revenue from the sale of automobiles and related products in international markets in the six months to June 2026.
No, the issue lies in the Chinese market, with BYD’s management commenting that new brands and models “poured into the market” in China. There’s been a proliferation of Chinese brands in export markets, so you can imagine what the situation looks like in the domestic market. BYD notes that Chinese brands now have a share of over 75% of the Chinese domestic market as of June 2026. The Europeans are being crowded out of China, but BYD is also fighting to maintain market share.
Why is this such an issue? Well, the domestic market is still the biggest source of revenue for BYD, with about 42% of group revenue derived from automotive products in the Chinese domestic market (including Hong Kong, Macau and Taiwan). Just in case you’re wondering, 20% of group revenue is from electronics and other products, a segment that showcases the industrial power of China in areas ranging from smart devices through to AI servers.
A significant uptick in competition would be less of an issue if the Chinese market wasn’t also going through a cyclical dip in demand. This is particularly true for new energy vehicles (NEVs), where demand has taken a knock as purchase tax exemptions were phased out. This appears to be the major driver of BYD’s revenue decline.
Group gross margin tells an interesting story, though, having increased from 18.01% to 18.85% due to mix effects. BYD notes that NEV exports to international markets are accretive to gross margin, so some of the negative impact of domestic market weakness is blunted by the improved mix. It’s amazing to think that BYD would prefer to export its vehicles rather than sell them domestically, yet they can still come in so much cheaper than the European brands. The gap in manufacturing efficiencies between Europe and China is astonishingly wide.
While Volkswagen, BYD and their respective regional peers fight for supremacy in a red ocean of competition, there’s a good news story to be found on the other side of the pond. The General Motors share price is up more than 50% in the past year, with the key differentiator the focus on the US domestic market. With trade policies in the US making it much harder for the Chinese (and Europeans) to compete, patriotism is valued at a premium these days.
When a market is being disrupted, often the best thing to do is to get far away from it. BYD has sent a cheeky message to European rivals with a picture of a vehicle in front of the Eiffel Tower in the latest earnings report. At General Motors, the cover slide features a Corvette with an American flag design. At poor Volkswagen, the latest presentation is focused on reducing models and cutting capex. The contrast is incredible.
