Why Tesla’s Chinese Rival BYD Faces A Raft of Troubles

Economic

Stocks

Summary:

BYD Co. has spent the last five years racing ahead. In 2024, with the help of government support, aggressive pricing and overseas expansion, the Chinese carmaker surpassed Tesla Inc. to become the world’s top seller of electric vehicles.

But after the boom, China’s biggest automaker faces a reality check. Since May, domestic sales have shrunk and growth in international deliveries aren’t enough to outshine the homegrown shortfall. At the same time, Beijing has stepped up scrutiny of the bruising price war that helped fuel BYD’s rise.

What was expected to be another blockbuster year has instead become the company’s toughest stretch since 2020. After five years of uninterrupted growth, BYD’s sales momentum stalled.

Between May and August, cumulative deliveries in China fell 10% year-on-year as BYD struggled to deepen discounts and attract new buyers. Seasonal weakness played a role, but competitors such as Geely Automobile Holdings Ltd., Zhejiang Leapmotor Technology Co. and Xiaomi Corp. have also been been gaining market share.

In August, BYD — an acronym for Build Your Dreams — reported its first quarterly decline in profit in three years with a 30% slump in net income.

The surprise drop sent shares tumbling by 8%, wiping off more than $6 billion from BYD’s market value. The slowdown has forced BYD to scale back its ambitious targets. Instead of an original goal of 5.5 million cars for 2025, it now expects to sell 4.6 million vehicles, according to Reuters — although that hasn’t been confirmed by BYD publicly.

Outside of China, BYD is faring better. An aggressive and expensive global push has helped BYD win fresh customers with its affordable, high-performing EVs. Higher-margin returns abroad have, so far, aided in offsetting cutthroat competition at home. However, an increasing number of markets — from Europe to Mexico — are now seeking to limit the rapid expansion of cheaper Chinese EV brands.

Since May, BYD has also been facing the full force of regulatory intervention in its home market. Chinese officials have cracked down on the domestic price war that kicked off in early 2023. Restrictions on price discounting have blunted a crucial tool in BYD’s playbook. At least BYD with its vertically integrated supply chain — it makes most of its own batteries and chips — has been able to largely sidestep supply chain snarls.

A regulatory clampdown on supply-chain financing however has also forced BYD to rein in its practice of delaying payments to suppliers beyond industry norms. Authorities have mandated that carmakers settle supplier payments within 60 days; a drastic change from the 275 days on average that it took BYD to pay its vendors in 2023.

Since BYD’s market capitalization peaked at $175 billion in late May, its shares have tumbled on the back of regulatory curbs and the summer sales slowdown.

Having long relied on aggressive discounting, BYD, now unable to do so openly, is trying to roll out new, high-tech laden models that are attractive to consumers seeking value. While investor sentiment remains subdued, market watchers say BYD’s line-up of new cars in 2026 should be a positive catalyst. HSBC Holdings Plc analyst Yuqian Ding said in a Sept. 17 note that a potentially major tech upgrade could accelerate sales growth next year.

BYD’s Hong Kong-listed shares have underperformed most domestic peers since March. While it remains the runaway leader in sales, rivals including Leapmotor, Geely and Xiaomi are enjoying rapid growth from a lower base.

BYD’s stock is, however, faring better than Tesla’s. The US EV maker’s securities have taken a hit this year, in part after Chief Executive Officer Elon Musk waded into politics, alienating both existing and prospective customers.

BYD began life in 1995 as a battery manufacturer primarily for mobile phones. It entered the car industry in 2003 when it acquired a failing state-owned automaker.

A turning point came in 2016 when it started to hire top foreign talent, including long-serving design chief Wolfgang Egger, a former veteran of Audi and Lamborghini. Egger overhauled the bland design of BYD’s vehicles in favor of a more stylish lineup that, at the same time, cost 25% less than comparable models from Western rivals.

BYD’s ambition to lead the new-energy vehicle market also aligned with the Chinese government’s strategy to embrace EVs as part of its push toward clean technology. Billions of dollars in government subsidies fueled EV adoption, helping to bolster BYD’s finances, among others.

Today, BYD offers a lineup of automobiles at various price points, from a city hatchback starting at around 55,800 yuan ($7,800) to a 1.7 million-yuan electric sports car.

Source: Bloomberg Europe

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Economic

Stocks

Market Setup

The S&P 500 closed at 6,606.76, down 8.52 or 0.13 percent, near record territory as investors lean into the idea of a jobless expansion where softer employment data encourages the Federal Reserve to cut rates. Forecasts for the index now stretch to 7,000 by year end, supported by enthusiasm for artificial intelligence spending and resilient earnings.

The thesis relies on a clear cause and effect relationship. Weaker hiring and rising unemployment increase the likelihood of rate cuts, lower policy rates reduce discount rates, and lower discount rates raise valuation multiples. Piper Sandler notes this pattern has historical precedents in the 1950s, 1960s, and early 1990s when softer jobs data coincided with falling rates and higher equity prices. JPMorgan’s label captures the same chain, equities rise because money becomes cheaper while growth is not collapsing outright.

Earnings, Valuations And Policy

Goldman Sachs’ David Kostin frames the profit channel in cause and effect terms. A cooling labor market slows wage growth, labor is the largest expense line for many firms, slower wage growth supports margins, and higher margins can justify richer multiples when the cost of capital declines. This is distinct from simple correlation between stock prices and economic headlines because the rate pathway and the expense pathway connect fundamentals to price.

The rally’s backdrop includes tension on Main Street. The unemployment rate for workers aged 16 to 24 rose to 10.5 percent in August, the first double digit reading since the pandemic, and recent college graduates now face higher jobless rates than the overall workforce. The University of Michigan’s September survey shows a second consecutive increase in long term inflation expectations, which aligns with reported pressure on household budgets from tariffs and higher prices. These developments stand in correlation with softer hiring and do not by themselves force equities lower, but they raise the risk that the cause and effect sequence flips from helpful rate relief to deteriorating demand.

Sentiment And Participation

Nearly half of retail investors in the latest AAII survey call themselves bearish, the most since April’s tariff lows, even as benchmarks set records. That divergence is a correlation, not a direct driver, although extreme pessimism sometimes coincides with future gains when policy support materializes. Market leadership remains narrow and concentrated in technology associated with artificial intelligence, which links price action to a specific investment cycle rather than a broad improvement across sectors.

The bullish script falters if the economy slows faster than earnings can absorb. In that case, the cause and effect chain would run from weaker activity to falling revenues and guidance cuts, overwhelming the benefit from lower rates. Policy frictions such as tariffs and immigration restrictions can lift input costs and constrain labor supply, which may keep inflation expectations elevated and limit the room for the Federal Reserve to ease as much as markets anticipate. If the central bank delivers fewer cuts than expected, multiples that rallied on the assumption of cheaper money would face pressure.

Equities are rising because investors expect rate cuts to intersect with moderating wage growth and steady earnings. That alignment is coherent while labor weakens only gradually and inflation expectations remain contained. It becomes fragile if consumer stress intensifies or if price pressures restrict policy easing. For now, bad news on jobs is treated as good news for valuations. Eventually, if the jobs data undercut revenues and guidance, that relationship will lose its power.

Source: Yahoo Finance

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Economic

Positioning And Sentiment

Bank of America’s latest Global Fund Manager Survey shows equity allocations in September at a seven-month high. Average cash balances are unchanged at 3.9% for a third month, a level often interpreted as caution because investors have limited dry powder. BofA strategist Michael Hartnett notes that positioning has not reached euphoria, which he defines as cash below 3.7% or equity allocations above 30%. With 28% of respondents overweight global equities, the stance is bullish but not at the hubris threshold that has historically preceded contrarian sell signals. The relationship between positioning and near-term returns is correlational since cash levels and allocations tend to coincide with, rather than mechanically cause, market moves.

Index Performance And Market Breadth

The S&P 500 closed at another record on Monday and the Nasdaq extended a streak to six straight all-time highs. The Dow Jones Industrial Average stood at 45,757.90 at the close, down 125.55 or 0.27%. A snapshot for September 2, 2025 lists the Dow at 45,295.81 for the close, 45,287.73 for the open, 45,295.81 for the high and 44,948.16 for the low, alongside the S&P 500 at 6,415.54 and the Nasdaq Composite at 21,279.63. These levels reflect the effect of rising risk appetite rather than a direct causal link from fund flows to price action. The most crowded positioning remains the long Magnificent Seven trade, which indicates that leadership is narrow and that breadth improvement is still tentative.

Policy Expectations And Street Targets

Strategists at Wells Fargo, Barclays, Deutsche Bank and Yardeni Research have raised S&P 500 targets, citing resilient earnings, an artificial intelligence investment cycle and expected Federal Reserve easing. Nearly half of survey respondents expect at least four Fed cuts over the next twelve months, and market pricing implies roughly five to six cuts. If the Fed delivers fewer than expected, the causal channel would likely operate through discount rates and multiples rather than through sentiment alone.

Stagflation Risk And Labor Signals

Seventy-seven percent of fund managers now expect a stagflationary environment that combines sluggish growth, sticky inflation and higher unemployment. This expectation is not itself a driver of stagflation; it tracks a correlation between slower activity indicators and persistent price pressures. JPMorgan describes a jobless expansion in which equities climb on expectations of rate cuts and easing wage pressures even as employment weakens. Piper Sandler points to historical episodes in the 1950s, 1960s and early 1990s when unemployment rose alongside stocks because softer labor data pulled interest rates lower, which supported valuations. In those periods the causal mechanism ran from weaker labor to lower rates to higher multiples.

Consumers, Prices And Retail Activity

Consumer sentiment has deteriorated. The University of Michigan’s September reading fell to the lowest since May, and long-term inflation expectations rose for a second consecutive month. The American Association of Individual Investors poll shows nearly half of retail investors now describe themselves as bearish, which is the bleakest reading since April’s tariff lows. These indicators coincide with pressure from tariffs and rising prices, especially for households with limited buffers. The correlation between sentiment surveys and subsequent spending can be loose over short horizons, which helps explain why August retail sales came in stronger than expected. That outcome suggests that spending is still resilient even as perceptions worsen.

Tariffs, Prices And The Growth Mix

Economists warn that the full impact of tariffs is likely to show up more clearly in the second half of the year. Price increases are already visible in categories such as food, furniture and motor vehicle parts. EY chief economist Gregory Daco argues that headwinds from tariffs and immigration restrictions could offset the temporary boost from artificial intelligence capex and Fed easing. In that view the causal pathway runs from policy frictions to higher input costs and tighter labor supply, then to slower real growth that may not be fully countered by lower policy rates.

Investment Implications

Positioning, index records and raised targets indicate constructive risk appetite supported by the prospect of easier monetary policy and ongoing earnings strength. The principal risks are concentrated leadership, the possibility that the Fed delivers fewer than the five to six cuts embedded in pricing, and the drag from tariffs that could harden inflation in sensitive goods categories while labor markets soften. The next phase of the rally will likely depend on whether lower rates materialize to the extent expected and whether revenue growth can persist as input costs evolve.

Source: Yahoo Finance

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Economic

Sharp Decline in Exports to the U.S.

Japan’s Finance Ministry reported that exports to the United States fell 13.8% in August from a year earlier, a sharper drop than July’s 10.1% decline. This marks the fifth straight month of contraction and highlights how sustained tariff pressure has eroded Japanese shipments, particularly in the automotive sector. Since autos form a dominant share of Japan’s exports to the U.S., the data suggest a direct causal relationship between the elevated tariffs and the contraction in trade volumes.

While the U.S. recently reduced tariffs on Japanese automobiles and auto parts from 27.5% to 15%, they remain far above the pre-tariff level of 2.5%. The August data reflect a period when the higher rate still applied, which explains the steep decline. Even with the recent cut, companies face a cost structure that limits competitiveness, and market recovery is unlikely to be immediate. This illustrates how trade policy changes exert a lagged effect on export performance, with firms adjusting production, pricing, and shipping strategies in response.

Mixed Performance Across Other Markets

Japan’s overall exports stayed nearly flat, slipping only 0.1% as gains to Europe and the Middle East offset losses to the U.S. Exports to China declined slightly by 0.5%, while imports from China rose 2.1%. This pattern shows a correlation rather than direct causation, as global supply chain dynamics and domestic demand cycles influence these flows alongside trade policy.

Meanwhile, imports from the U.S. surged 11.6%, revealing an asymmetric effect: while Japan is selling less to the U.S., it is buying more from it. This underscores how tariffs targeted at outbound goods can disrupt bilateral trade balances rather than simply reduce overall trade engagement.

Sectoral Trends and Shifting Trade Composition

The data also highlight diverging trends within product categories. Food exports rose 18% and ship exports surged nearly 25%, while imports climbed in high-value sectors such as computers (up nearly 35%) and aircraft (up 21%). These shifts suggest Japanese firms are pivoting toward markets and products less exposed to U.S. tariffs, while importers are capitalizing on technology and capital goods demand to support domestic industries.

Japan’s prolonged decline in exports to the U.S. underscores the tangible economic fallout from protectionist U.S. trade policy. The sharp drop in auto shipments directly reflects the tariff burden, while stable performance in other regions and growth in sectors like food and ships show how Japanese trade is gradually diversifying. The persistence of elevated tariffs, even at a reduced 15% rate, signals that recovery in Japan-U.S. trade flows may remain slow and uneven, with long-term structural shifts in supply chains likely if tariffs endure.

Source: Yahoo Finance

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Olivia Brooks

Cryptocurrency

The United States Federal Reserve is anticipated to lower interest rates today, which has already been factored into the cryptocurrency market with a 25-basis-point reduction. Investors are eagerly anticipating the interest rate announcement at 21:00 Turkish Standard Time (TSI) and the subsequent press conference by Fed Chairman Jerome Powell at 21:30 TSI. According to CME FedWatch data, there is a 96% likelihood of a quarter-point rate cut. Ahead of this decision, Bitcoin (BTC) has surged past the $117,000 mark, approaching its highest level in a month.

Investor Focus on Powell’s Statements More Than Rate Decision

Juan Leon, investment strategist at Bitwise, suggests that the markets have already absorbed the expectation of a rate cut, indicating that the real impact will emerge from Powell’s remarks after the meeting. While CME FedWatch suggests a high probability of a rate cut, the possibility of the Fed surprising markets with a significant 0.50-point reduction remains on the table.

Weakness in the United States’ employment data has reinforced the prospect of a rate cut. Although the Fed has held rates steady through the last five meetings, it last enacted a 25-basis-point reduction in December of the previous year. Powell has consistently emphasized that inflation remains above the 2% target, and decisions are driven by economic data. Consequently, forthcoming statements will be pivotal in determining the direction of both cryptocurrency and traditional markets.

Fed Activity Sparks Movement in the Crypto Market

In the last 24 hours, Bitcoin has gained 1.17%, reaching up to $117,300. Ethereum (ETH) has risen by 0.93%, XRP by 1.30%, and Solana (SOL) is up by nearly 0.5%. Notably, Solana has made significant progress, appreciating nearly 10% over the past week, linked to the expansion of network treasuries in the altcoin sector.

The broader cryptocurrency market has experienced an upswing, consistent with the strengthening anticipation of a rate cut. A surprising 50-basis-point reduction could potentially trigger even stronger market movements. Powell’s forthcoming messages are expected to provide insights into the Fed’s trajectory for the rest of the year.

Source: CryptoSlate

Risk Warnings and Disclaimers

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ING

Forex

Economic

USD: Bumpy ride on the Fed roller coaster

It's FOMC day, and the Fed is widely expected to cut rates by 25bp. There are many moving parts to today's meeting, but let's go through a few of them. First at 20CET, we'll get the FOMC statement and an update of the Summary of Economic Projections (SEP), which includes the Dot Plots on median expectations for the Fed Funds rate over 2025, 2026, 2027 and the longer term. In the statement, beyond the 25bp cut, we'll be looking for a phrase like 'In considering additional adjustments to the target range' which the Fed used last year to signal a succession of cuts. The alternative: 'In considering the extent and timing of additional adjustments', would reflect hesitancy and lift short-dated rates and the dollar. The statement will also show the voting pattern, which could be something like eight for a 25bp cut, three for 50bp (Waller, Bowman, Miran) and perhaps one for unchanged rates (Schmid).

On the Dot Plots, the majority of economists think the median 2025 Dot Plot will continue to see just two cuts – i.e. policy ending the year in the 3.75-4.00% target range from 4.25-4.50% now. This could be a problem for the short end of the US curve, which prices 70bp of rate cuts. Expectations are that the 2026 Dot will add one extra cut to the June projection, so it would shift to 3.25-3.50%, while the 2027 Dot would also shift by one cut to 3.00-3.25%. In short, the Dot Plot could show a slower trajectory of getting to 3.00-3.25% compared to current pricing of that zone being hit late next summer.

After the statement/SEP at 20:30CET, we'll get Chair Jerome Powell's press conference. A market widely bearish on the dollar will want to hear greater concerns over the jobs market and less concern over tariff-induced inflation. He'll probably highlight that monetary policy can become slightly less restrictive, but stop short of suggesting any urgency to cut rates more deeply.

The dollar is going into this meeting on the soft side as the Fed prepares to restart its easing cycle. There are some upside event risks to the dollar from the Dot Plot – and perhaps from Powell's press conference too. Nonetheless, today should confirm that the Fed is embarking on a 125bp easing cycle. We would see any upside spike in the dollar as temporary and corrective – eg, DXY sellers could re-emerge in the 97.50/98.00 area. And we doubt a slightly more gradual easing cycle than the market expects needs to trigger a sharp re-pricing of risk assets.Alternatively, if Chair Powell throws in the towel on the inflation threat and wholly focuses on the need to prevent job losses with precautionary rate cuts, DXY can just break down towards a near-term target at 95.

EUR: Range break-out

EUR/USD has broken to the topside of a 10-week trading range, and it looks hard to resist the move. Two-year EUR:USD swap rate differentials have narrowed around 50bp in favour of the euro over those 10 weeks. As above, tonight's FOMC will be the dominant theme now, and we'd expect good demand for EUR/USD on any corrective dip to the 1.1750/1780 area during Powell's press conference. Seasonality now builds against the dollar – especially in November and into December – and 1.1910 looks like the final resistance level before 1.20 is hit.

For today's European session, look out for the ECB's release of its wage tracker index. The last release showed wage agreements down at 1.7% in 1Q26 from 4.6%in 1Q25 and the ECB will be interested in whether this has picked back up to 2.0% given improving business optimism this summer. For reference, investors currently price just 11bp of ECB easing by next summer. We think the easing cycle is over.

GBP: Fiscal policy remains the weakest link

The rug was pulled from under the sterling rally yesterday when the Financial Times reported that the Office for Budget Responsibility had indeed lowered its productivity forecasts for the UK economy. This will deprive Chancellor Rachel Reeves of expected revenues and potentially add £9bn to the fiscal gap she faces in November's budget.The negative event risk of November's budget is offset by the recently turned hawkish Bank of England. Sterling has sold off this morning on a slightly sub-consensus August CPI services reading at 4.7%, even if the BoE's preferred measure of services inflation has remained unchanged at 4.2% YoY.

We think the dollar will be the dominant FX theme, and GBP/USD should find support near 1.3600 before being dragged above 1.37. Sterling's fiscal vulnerability looks more like a story for EUR/GBP. Yet a still hawkish BoE (see tomorrow's event risk) may mean EUR/GBP continues to trade in a 0.8650-0.8715 range.

CAD: Today’s Bank of Canada cut not the last

Markets are fully pricing in a 25bp rate cut by the Bank of Canada today. As discussed in our preview, that is also our call. Yesterday, Canada reported headline inflation at 1.9%, below the 2.0% consensus, while core measures were unchanged at 3.0/3.1% as expected. It’s an inflation picture that isn’t concerning enough to prevent a resumption of rate cuts, given the backdrop of job market deterioration. Unemployment has reached 7.1%, the highest since 2021, the economy contracted by -1.6% QoQ annualised in the second quarter, and activity surveys point to further downside risks.

We expect another cut by the BoC in December, which is now also almost fully priced in. The BoC has kept its guidance very open-ended, and we doubt policymakers want to push back against easing bets at this meeting. The reaction in CAD today may not be that significant as markets retain strong data dependence for any material adjustments in rate expectations. We retain a bearish bias on CAD against most of the G10, although USD weakness can keep USD/CAD stable or slightly offered around 1.37.

Source: ING

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Economic

Monetary Policy in Focus as Fed Readies Rate Cut

After prolonged speculation driven by volatile economic data, the Federal Reserve is set to reveal its monetary policy direction in a decision that investors have been anticipating for weeks. Markets have already priced in a near-certain rate cut of 25 basis points, bringing the federal funds target range to 4.00%-4.25%. However, the larger question dominating investor attention is how much additional easing the Fed intends to deliver through 2026.

Expectations currently lean toward another 150 basis points of cuts by the end of next year. This anticipated trajectory has already shaped global asset prices. The Fed's forward guidance, especially the updated "dot plot" projections and comments from Chair Jerome Powell, will be critical in confirming or recalibrating market assumptions.

Global Asset Movements Reflect Fed Anticipation

Investor sentiment is clearly positioned for a more accommodative monetary environment. Equities and gold prices have reached record levels, while the U.S. dollar has weakened significantly, reaching its lowest level against the euro in four years. This asset reallocation reflects a perceived causal relationship between anticipated lower interest rates and risk-seeking behavior among investors.

U.S. Treasury yields have fallen in response to the expected rate path, further reinforcing the inverse correlation between bond prices and interest rate outlooks. The equity rally, led by speculative bets on continued monetary support, carries potential for increased volatility if the Fed signals fewer cuts than priced in.

Trump’s Influence and Political Intrusions into Central Bank Affairs

President Trump’s influence remains a notable backdrop. His public pressure for easier policy, including veiled threats against Fed independence, contributes to the perception of a dovish shift. Despite some setbacks such as a court blocking his attempt to remove Fed Governor Lisa Cook Trump has successfully placed Stephen Miran, a key economic advisor, onto the Fed board.

This political dynamic suggests a potential shift in internal Fed deliberations, although the central bank has thus far maintained its institutional autonomy. Still, markets may interpret these changes as signaling a structural tilt toward looser policy over time.

Canada, Japan, and Global Spillovers

The Federal Reserve is not the only central bank facing critical decisions. The Bank of Canada is also expected to cut rates, as labor market strains and ongoing trade disruptions intensify. Meanwhile, Japan’s economic challenges deepen, with August marking the fourth consecutive monthly decline in exports, a trend linked to the broad-based tariff regime introduced under Trump’s presidency.

These developments suggest a broad global context in which central banks are increasingly leaning toward stimulus, either in response to local economic weaknesses or international trade uncertainty. This convergence of easing monetary policies underscores the interconnected nature of financial responses to geopolitical decisions.

Market Sentiment and Day’s Outlook

In Asia, early caution gave way to optimism, with the Hang Seng Index climbing 1.4%, signaling upbeat investor expectations. European markets are projected to open higher, while U.S. futures remain relatively flat, likely awaiting the Fed’s clarity before committing to directional bets.

Meanwhile, key economic releases including U.S. housing starts, U.K. and euro zone consumer price indexes, and Germany’s long-term bond auctions will feed into broader inflation expectations and monetary outlooks.

In the corporate world, attention also turns to Meta’s Connect conference and the IPOs of StubHub and WaterBridge Infrastructure, which may inject additional sentiment drivers into equity markets.

Today’s Fed decision carries significant weight in shaping the trajectory of both U.S. and global markets. The anticipated rate cut is largely a formality, but the Fed’s forward guidance, projections, and tone will determine whether markets continue their upward momentum or correct in response to more restrained policy. As other central banks follow suit and political pressure mounts, the balance between inflation control, labor market stability, and growth stimulus remains precarious. All eyes now turn to Jerome Powell and the dot plot for the next phase of monetary strategy.