By Evan
For the past three years, BYD Co. has reigned supreme as the undisputed king of the Chinese electric vehicle (EV) market. However, the first quarter of 2026 delivered a shock to the industry: Geely Automobile Holdings overtook BYD in monthly sales for two consecutive months. This shift raises a critical question for global investors: is BYD losing its grip, or is the Chinese market simply entering a new, more competitive era?
Eroding dominance
BYD’s domestic performance in early 2026 has been uncharacteristically sluggish. After peaking at 480,000 units in November 2025, total sales plummeted to 210,000 in January and 190,000 in February. While overseas exports remain a bright spot (consistently above 100,000 units), domestic sales have effectively been cut by two-thirds.
Geely capitalized on this lull to seize the top spot among domestic brands. Analysts point to a “perfect storm” of external factors. First, the subsidy hangover: a 50% reduction in EV tax incentives starting in 2026 pulled demand forward into late 2025. As a pure-play EV maker, BYD bore the brunt of this demand exhaustion. Second, the internal combustion safety net: unlike BYD, Geely maintains a robust internal combustion engine (ICE) lineup, which accounted for nearly half of its early 2026 sales, providing a crucial buffer against EV market volatility. Third, strategic sandbagging: while BYD pushed for a record-breaking close to 2025, Geely hit its targets early and put its foot on the brakes, shifting inventory and momentum into 2026 to ensure a strong start to the new year.
Geely’s resurgence is the result of a calculated pivot initiated in late 2024 under Chairman Li Shufu. The “Taizhou Declaration” streamlined Geely’s dizzying array of sub-brands — merging Geometry into Galaxy and consolidating Zeekr with Lynk & Co.
The strategy is working. The Galaxy E5 and Xingyuan models have successfully targeted BYD’s bestsellers by using what analysts call the bottom-right strategy: offering vehicles that are slightly larger and slightly cheaper than BYD’s equivalents. In 2025, the Geely Xingyuan even displaced BYD models to take the top spot in the EV sales charts.
Changing of the guard
Despite the sales wobble, BYD retains the lead in the eyes of the capital markets. With a market capitalization hovering near 1 trillion yuan ($138 billion), that’s roughly three to four times Geely’s valuation.
BYD’s strength is built on extreme vertical integration. By manufacturing 75% to 80% of its own components—including a nearly 95% self-sufficiency rate for batteries and over 90% for power chips—BYD maintains gross margins at around 20%. It has evolved from a manufacturer into a Tier 1 supplier, selling its “Blade” batteries and electric drive systems to rivals like Tesla and Xiaomi.
Geely’s margins are lower and more complex, reflecting its multi-brand structure. Premium marques such as Volvo provide steady profits, while newer EV brands like Zeekr and Galaxy are still investing for growth. Investors, however, see stronger upside in Geely’s earnings trajectory and brand premium potential. Geely also emphasizes ecosystem collaboration rather than vertical integration. It develops core platforms in-house but has a broad suite of partners — with CATL on batteries, and across a network of brands and technology firms — to share costs and accelerate innovation.
Financing models also diverge. BYD’s strong cash flow and large reserves allow it to fund expansion internally, supporting its global push and R&D spending. Geely relies more on multi-market financing — from equity issuance to overseas listings — offering flexibility but also adding complexity and risk.
The new battlegrounds: globalization and ‘premiumization’
The industry’s competitive landscape is shifting. With China’s NEV penetration already exceeding 50%, domestic growth is slowing and competition intensifying. Two avenues remain critical. The first is premiumization — moving beyond mass-market price wars to build high-margin luxury brands (such as BYD’s Yangwang or Geely’s Zeekr).
The second is globalization — with the Chinese domestic market reaching saturation, the only outlet for excess capacity is global expansion.
BYD has gained an early lead internationally, entering Europe, East Asia and Latin America, and earning a “global automaker” premium from investors. Geely’s overseas presence is broader but less consistent, relying on brands such as Volvo and Proton, with weaker recognition in newer markets.
By 2028, the complete phase-out of NEV tax incentives in China could further reshape the landscape, potentially giving ICE-heavy players like Geely, Chery and Great Wall a temporary advantage.
The broader trajectory, however, points to a more balanced competitive field. BYD’s dominance is being eroded, but not overturned. Instead, China’s auto industry appears to be entering a new phase — one defined not by a single champion, but by multiple strong contenders.
Source:
LatePost
https://mp.weixin.qq.com/s/ouJagkZjSyhgH6xKm4SRsw
