BYD’s meteoric rise in the electric vehicle (EV) market is fueling discussions, not just due to its swift global expansion but also because of its complex financial strategies. A recent report by Hong Kong-based GMT Research, which primarily serves institutional investors and hedge funds, has brought attention to the financial intricacies of BYD, a conglomerate also excelling in batteries, renewable energy, monorail trains, and electronic components.

According to GMT Research, BYD’s actual net debt as of June 30, 2024, was approximately 323 billion yuan ($44.1 billion), significantly surpassing the 27.7 billion yuan declared by the company. This discrepancy arises from liabilities transferred or collateralized for loans and supplier debts exceeding 90 days maturity. With a debt to stock market capitalization ratio exceeding 43% (compared to its $112 billion market cap, ranking fourth globally behind Tesla, Toyota, and Xiaomi), there is growing concern over BYD’s financial risk, particularly if revenue streams were to falter. Such a situation might challenge the company’s ability to manage its financial obligations.

In comparison, Tesla, the leader in the global EV market, has maintained a relatively healthier balance sheet, focusing on reducing costs and increasing profitability. Toyota, though a traditional automaker with significant investment in EVs, manages a diversified portfolio that cushions it against market fluctuations. Xiaomi, known more for its electronics, has recently ventured into EVs, potentially leveraging its technological expertise to offset financial risks.

Despite these revelations, the Hong Kong Stock Exchange showed resilience, with BYD’s stock appreciating by 44% over the past year. This stability suggests investor confidence remains largely unaffected, even in the face of potential financial vulnerabilities highlighted by GMT Research. However, BYD’s high leverage remains a point of concern as compared to its competitors, who boast more diversified financial strategies and stronger capital structures.