BYD Company: Stock of the Week

Key Takeaways from BYD Stock

- Sales momentum is expected to remain robust for the rest of 2023.

- Profit margins are expanding.

- The stock is in a 4-star price range, with a 20% upside possibility. 

Among giants like Toyota and Volkswagen, China’s BYD (01211) is the fifth-largest automaker worldwide by sales volume in July and is the only one in the top 10 that exclusively sells new energy vehicles. Our equity analysts think there are three reasons to like this stock.

First, sales momentum is expected to remain robust for the rest of 2023. Our analyst Vincent Sun raised the forecast for BYD’s total vehicle sales to 2.9 million units this year, which is a 55% growth from a year ago.

BYD’s current model portfolio is built on leading in-house blade battery and plug-in hybrid technology, which we think is competitive in terms of driving range and energy efficiency. We believe this will further solidify its leading position in the mass new energy vehicle segment, which is well-liked by the country’s middle-class consumers as an affordable premium option.

Earlier this year, BYD followed Telsa to in slashing its vehicle unit prices. Despite industrywide price competition, BYD continues to expand its profit margin. Riding on a better sales volume and development of battery density, BYD should be able to scale costs with economies of scale and see higher profitability over the longer term.

Lastly, in terms of valuation, its H-share listing in Hong Kong is trading in a 4-star price range and has a 20% upside potential based on Morningstar’s estimates.  

For Morningstar, I am Kate Lin.

 BYD Stock Bulls Say

• BYD’s leadership in in-house battery and plug-in technology will differentiate its products from competitors and ensure the success of its future models, including both electric vehicles and PHEVs.
• The company’s industry-leading DM-i plug-in technology, coupled with proprietary blade battery, enables the company to launch competitive NEV models.
• Advancing battery technology and charging solutions will ease range anxiety on electric cars. Chinese consumers’ soaring demand for electric cars will benefit NEV carmakers such as BYD.

 BYD Stock Bears Say

• Escalating battery raw materials costs will put BYD’s vehicle margin under pressure. It will derail the industry projection of cost parity of NEVs with ICEs, affecting NEV adoption in the long run.
• BYD lags other NEV startups in the development of autonomous driving technology, which puts the company at a disadvantage as younger-generation car buyers value the vehicle tech experience.
• Rising competition in China’s NEV market indicates legacy original equipment manufacturers will defend their market share with aggressive new model launches.