BYD Co. Ltd. (HKG:1211) (OTCMKTS: $BYDDY) is the world’s leading producer of new energy vehicles (NEVs), including electric trucks, buses, forklifts, cars, and rail. The company averages sales of over 200,000 NEVs per month worldwide.
Disappointing BYD Preliminary Income Report
BYD released its preliminary income report on Tuesday, January 30, 2024, in Hong Kong. According to the report, the preliminary net income in 2023 rose by at least 75% to 29 billion Yuan or $4 billion, below analysts’ estimate of $4.43 billion or 31.5 billion Yuan.
For the fourth quarter, BYD expects a net income of 7.2-9.2 billion Yuan or $1.01-$1.3 billion, a drop from the 10.9 billion Yuan or $1.53 billion reported in the same period last year. It expects a basic EPS of 9.98-10.67 Yuan or $1.41-$1.50 for the fourth quarter, a 74.78%- 86.87% increase from the 5.71 or $0.80 reported last year.
Despite missing the targets, BYD surpassed Tesla in terms of total sales for the fourth quarter. The company recorded 526,409 EV sales, above the 484,507 in sales reported by Tesla for the same quarter. BYD recorded 3.02 million in sales for the full year, a 61.9% increase from last year.
The China EV Price War
BYD’s preliminary income missed analysts’ estimates due to the ongoing price war in China. China’s EV market has faced fierce competition over the past year. As such, companies have had to cut prices to maintain market share.
In November, BYD cut prices by as much as 10,000 Yuan ($1409) for several models. That was done to meet its target of 3 million sales for 2023. The cuts were successful, with the company exceeding its target by 24,000 units. While the price war in China also puts pressure on Tesla’s margins, the US EV maker retained relatively higher prices.
According to a translation from CNBC, BYD’s general manager in charge of branding, Yunfei Li, expects prices to remain depressed for the next two to three years. Li added that those who cannot compete will be eliminated. He suggested they would work with Tesla, a “respected industry peer,” to grow the EV market in China.
Looking to Global Markets for Sales Growth
2023 was a good year for BYD. However, it must look for new markets to grow in 2024. It has already embarked on a push into Southeast Asia and Europe. As BYD expands outside China, leading car makers in the West have raised concerns about their future. During a recent investor conference, Elon Musk, acknowledged that without trade barriers, Chinese carmakers would demolish the competition.
However, the carmaker may find it harder to compete abroad. For one, it will have to deal with higher wages and convince EV customers loyal to Western carmakers. Additionally, it will have to overcome regulatory hurdles. The company and two others are under investigation by the European Commission over claims that China is offering them unfair subsidies.
BYD Shares Fall
The company’s stock fell by 5.6% at close of trading on Tuesday, January 30, 2024, in Hong Kong after the release of the preliminary report. While it forecasts net income growth of 74.46-86.49% for FY23, it is lower than the 446% net income growth recorded in FY22.
BYD Stock Forecast
One analyst gives a moderate buy rating for BYDDY stock. The analyst predicts a price of $32 for the stock in the next 12 months, which is a $31.33% decline based on Monday’s closing price of $46.60.
Should You Buy BYDDY Stock?
BYD has been one of the most successful EV makers of the last decade. It has seen revenues rise by an average of 300% in the past five years. However, EV demand has recently slumped, which might slow future growth. One main advantage of BYD over other carmakers is vertical integration.
The company, which began as a phone battery maker, has successfully integrated its entire production line, which legacy carmakers struggle to do. However, despite its efficiencies, the carmaker could face major regulatory hurdles as it attempts to access Europe’s car market in the coming months. As such, it would be prudent to wait on the sidelines and watch how the EV demand and regulatory issues pan out in the coming months.
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