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This study delves into the profound influence of defects and their evolution within the microstructure on the thermoelectric transport properties, with a primary focus on the Bi–Cu–Te ternary system. By systematically investigating the intricate relationships between composition, microstructure, and thermoelectric properties, this research offers a comprehensive framework for optimizing these alloys in potential thermoelectric applications. The candidate alloy compositions were selected using a self-consistent thermodynamically optimized database of Bi–Cu–Te and synthesized using flame melting. The microstructure evolution was characterized using X-ray diffraction, scanning electron microscope, and electron probe microanalyzer. The presence of γCu3Te2 intermetallic significantly enhanced hardness, with optimized compositions showing a doubling of hardness compared to conventional BiSbTe alloys. The observed morphologies of each alloy and their thermoelectric properties correlate with the Cu concentration variations. An optimized composition exhibited excellent electrical conductivity of 100 kS/m, Seebeck coefficient of − 145 μV/K, and power factor of 1.85 mW/mK2. These results provide insights into tailoring the composition and microstructure of Bi–Cu–Te alloys to improve their efficiency for thermoelectric waste heat recovery. [ABSTRACT FROM AUTHOR]