Shares of Chinese automaker BYD listed in China jumped more than 5% on Tuesday, following a significant increase in first-half profit.

Thanks to record deliveries, BYD, a leading Chinese electric car maker, reported a net profit of 10.95 billion yuan ($1.50 billion) in the first six months of the year, a 204.68% surge compared to the same period last year.

Both Hong Kong and Shenzhen-listed shares of BYD experienced notable gains on Tuesday, with increases of 5.6% and 4.75%, respectively.

The company attributed its strong financial performance to rapid growth in the new energy vehicle business.

According to a stock filing, BYD’s revenue in the first half of the year increased by 72.72% compared to the same period in the previous year.

Barclays’ China technology analyst, Jiong Shao, commented on BYD’s impressive performance, stating that the company’s gross margin for the first half of the year was 18%, equivalent to Tesla’s gross margin.

BYD, China’s top-selling car brand, achieved its best-ever quarterly sales results, with approximately 700,244 units of passenger new energy vehicles sold in the second quarter, a year-on-year increase of about 98%.

Comparatively, Tesla reported global deliveries of 466,140 vehicles for the same quarter.

China, the largest auto market and EV market in the world, plays a crucial role in driving the adoption of electric cars.

Frost & Sullivan’s associate partner, Vivek Vaidya, highlighted that BYD targets the mass market where Tesla cannot reach, offering China-made vehicles with competitive prices and similar features.

BYD faces pressure from domestic rivals, including Tesla, in a price competition.

In August, Tesla reduced the prices of its Model S, Model X, Model Y, and Model 3 as it sought to gain a larger market share in China. BYD and other domestic competitors like Nio and Xpeng also implemented price cuts.

Barclays’ Jiong Shao expressed that the price reductions to eliminate weaker players benefit the overall health of the industry. He also mentioned that BYD’s operating margin of 5% is relatively healthy compared to other players in the Chinese EV market.

The price cuts by automakers reflect cautious consumer spending in China due to an underwhelming economic recovery following the lifting of Covid restrictions.

Vaidya from Frost & Sullivan explained that the brands are lowering prices to maximize market penetration. He emphasized that EVs generate revenue for original equipment manufacturers like Tesla through factors such as charging points.

Vaidya further highlighted the competitive landscape among automakers, stating that the discounting and price war aim to establish a strong presence in the market. Once accomplished, the focus shifts to profitability.