While Tesla Inc’s shares have fallen recently on demand concerns, Chinese rival BYD Corp has cheered investors as investors cheered its record sales year and expanding footprint in the world’s largest electric vehicle market.
U.S.-listed shares of Warren Buffett-backed BYD have risen 8.5 percent over the past month, while Tesla has fallen 40 percent. They also beat a gauge of global EV makers, which fell 12%, and outperformed domestic peers Li Auto Inc. and Nio Inc.
Investors see BYD as the leader in China’s electric vehicle industry and say the company is poised to be a major beneficiary as the country reopens its economy. While that’s good for all automakers, BYD is in a good position because it’s grabbing market share, has better pricing power, and controls much of the supply chain, making its own chips and batteries, the bulls express.
“We really like the vertical integration that BYD has built up over the years, and many are now working towards that,” said Kevin Netter, a portfolio manager at Edmond Rothschild Asset Management in Paris. “And of course the added bonus of China reopening this year.”
Last year was a tough one for global electric carmakers. Rising interest rates and higher inflation have hurt demand. Supply chain hurdles and growing competition also hit the bottom line. BYD, in particular, fell 27%, a decline that accelerated after longtime Buffett backer Berkshire Hathaway trimmed some of its stake.
BYD appears to have overcome many of these hurdles, though. Its production and sales of new energy vehicles have tripled in a year despite sporadic and prolonged city-wide lockdowns triggered by the country’s Covid-free policy.
Analysts are taking notice. BYD has the second-most buy-equivalent recommendation among global automakers with a market cap of more than $1 billion, behind Mumbai-based Mahindra & Mahindra Ltd, according to data compiled by Bloomberg. At least 13 brokerages confirmed the recommendation last week.
All of these gains have come at Tesla’s losses, especially as it also tries to gain a foothold in China. Shares of Elon Musk’s company fell 65% last year, dragged down by his purchase of Twitter Inc. The company’s shares suffered their biggest one-day drop since 2020 on Tuesday after missing delivery expectations for the third straight quarter despite deep discounts offered to Chinese consumers.
On Friday, Tesla made another round of price cuts on some of its products in the Asian country amid heightened competition. Meanwhile, BYD announced a price increase on a popular model late last year, and the company this week unveiled the first of two new luxury electric car brands it will launch this year. Shares of the company fell as much as 7.7% on Friday, hitting a more than two-year low.
“Tesla’s recent missteps in earnings and production have added to market concerns about demand,” said Christina Woon, director of investment in Asian equities at abrdn plc. “It’s also why people have been pretty lukewarm about the industry, even though some names have a good backlog.”
Still, there are reasons for caution. Tesla’s valuation has been lower than that of BYD since the end of December last year, according to Bloomberg data. Questions about how quickly China’s economy can rebound will be a major driver of further sales.
Edmond de Rothschild’s Net added that this could mean volatility ahead for BYD shares, as “overall sentiment toward China remains a major question mark” as the country reopens and consumption recovers.