China’s BYD is Surpassing Tesla in China

China’s electric-vehicle (EV) maker BYD Co (BYDDY) is outperforming Tesla and other EV makers on sales in China, the world’s biggest EV market.  BYD earlier this week announced that annual new EV sales tripled last year to 1.86 million units.  Shares of BYD have risen +8.5% over the past month versus a -40% slump for Tesla (TSLA) and a -12% decline for a measure of global EV makers.

BYD Co, with a market capitalization of $72.8 billion, is considered a bellwether for China’s EV market. Analysts say that while the reopening of China’s economy will benefit all carmakers, BYD is well placed because it is taking market share, has better pricing power, and controls much of its supply chain by producing its own chips and batteries.  Warren Buffet’s Berkshire Hathaway is a long-time backer of BYD.

Global EV makers were hammered last year as rising interest rates and higher inflation hurt demand.  BYD fell -27% in 2022, with losses accelerating last month after Berkshire Hathaway announced that it offloaded more than 25% of its stake in the company. However, BYD might be poised for a rebound after it said production and sales volume of new-energy vehicles tripled last year despite China’s Covid Zero policy that sparked protracted lockdowns and roiled supply chains.

Most analysts are upbeat about the prospects of BYD.  Bloomberg-complied data show that the company has the second-most buy-equivalent recommendations among global automakers with market values exceeding $1 billion.  In addition, at least 13 brokerages affirmed their buy recommendations in the past week.  Meanwhile, BYD announced a price increase on a popular model last month, even as Tesla continues to cut prices on its models made in China.

BYD is looking to broaden its reach by expanding into the premium car market.  This week it rolled out the first of two new luxury electric-vehicle brands it is introducing this year.  Also, Fitch Ratings said BYD is “resilient thanks to long order backlogs and a stable supply chain.”

However, there are still many reasons to remain cautious about EV sales in China this year.  It is unclear how quickly China’s economy can bounce back from the end of the government’s Covid Zero policies, as most of the country is currently experiencing a surge in Covid infections. Edmond de Rothchild’s Asset Management said that “the overall sentiment on China is still a major question mark” with the country’s pace of reopening and consumption recovery.

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