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Investors are learning that BYD’s record sales, juiced by an intense price war in China, won’t translate into bumper profits.

Shares of Chinese EV automaker BYD slipped by 4.7% on Tuesday after the company reported its estimated net income for 2023. The broader Hang Seng index fell by 2.4%.

The company forecasts a net profit of between 29 billion and 31 billion yuan ($4.1 billion to $4.4 billion) for 2023, according to an exchange filing. That 2023 profit would represent an increase of as much as 86.5% from the year before. Yet BYD’s estimated earnings came in slightly below analyst expectations of 31.5 billion yuan, according to Bloomberg.

That implies that BYD’s recent record-breaking quarter, when the Chinese company finally overtook Tesla in sales of battery electric vehicles, did not translate into larger profits. BYD’s profits in the final quarter of the year even dropped by somewhere between 16%–34% compared to the previous quarter, according to Bloomberg calculations.

BYD said its estimated 2023 results show the company’s “significant improvement in profitability” despite “increasingly fierce competition in the industry.” BYD also attributed its performance to “rapid growth in overseas sales volume” and controlling cost in the supply chain.

The company’s shares are down 45% from their peak in July 2022.

BYD’s margins could be under pressure from a fierce price war in China, as the carmaker tries to sustain growth in the world’s largest auto market. The company cut prices of several models by as much as 10,000 yuan ($1,409) in November as it raced to meet its full-year target of 3 million sales. The company exceeded that target by about 24,000 vehicles.

While China’s price wars also pressured Tesla’s margins, the U.S. automaker generally charges more for its models than BYD.

Prices may remain low for “two to three years,” BYD general manager for branding Yunfei Li told reporters on Monday, according to a translation from CNBC. “Many brands that aren’t able to compete in the market will be eliminated,” he said, while suggesting that the company would work with Tesla—a “very respected industry peer” and “client” of BYD—to grow China’s EV market.

BYD’s global expansion

2023 was a record year for BYD, but the Chinese EV firm may find 2024 trickier to navigate. BYD faces slower growth in its home market, pushing the carmaker to embark on a bold plan to expand to markets outside of China, including Japan, Southeast Asia, and Europe. Western automakers are concerned about competition from affordable Chinese EVs from companies like BYD, with even Tesla CEO Elon Musk admitting that trade barriers may be the only thing keeping Chinese companies from “demolishing” the competition.

Yet BYD may struggle to find the same success in overseas markets that it found in China. The Chinese carmaker will need to pay higher wages in foreign labor markets and will need to attract customers with strong loyalty to Western brands.

The Chinese carmaker will also need to withstand regulatory scrutiny. It’s one of three companies targeted by the European Commission’s anti-subsidy probe investigating whether Chinese carmakers are unfairly benefiting from government subsidies.