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Shares of Chinese electric vehicle maker BYD Co (BYDDY) are up +1.7% this month, handily beating the -17% plunge in shares of Tesla (TSLA). BYD is poised to overtake Tesla as the world’s biggest seller of electric vehicles as sales increases for the company gain traction, while Tesla sputters after it reported a decline in vehicle deliveries in Q3, its first quarterly decline in more than a year.
BYD sold 431,603 fully electric vehicles in the three months ended September 30, up +23% from Q2. Meanwhile, Tesla shipped 435,059 cars globally in the same quarter, down -6.7% from Q2, leaving a 3,456 gap in sales between the two companies, the smallest ever. BYD posted all-time high sales despite intensifying competition and a broad slowdown in sales of China’s new-energy cars. Analysts have raised their earnings projections for BYD since the company reported vehicle deliveries earlier this month, and the stock rose more than +1% today after reporting a record Q3 profit of 10.4 billion yuan ($1.4 billion).
Comments from Tesla CEO Musk weighed on the company’s stock price earlier this month when he said rising interest rates in the U.S. have hurt its sales. Tesla’s earnings are also suffering from its months-long price war that it started in an attempt to boost demand. Analysts have been lowering Tesla’s earnings-per-share estimates while the outlook for BYD has been rising. Tocqueville Finance said, “BYD still looks like the safest bet versus Tesla in the short term given its discipline in terms of balancing volume growth with profitability.”
In Q3, BYD sold a record 822,094 vehicles, including hybrids, making it China’s best-selling car brand. BYD is also making more money per vehicle despite price competition. According to JPMorgan Chase, BYD’s Q3 profit per car, excluding the impact of the company’s electronics unit, rose +46% from Q2. JPMorgan Chase predicts the company can maintain its profitability into next year due to increased sales of its high-end vehicles as well as continued overseas expansion.
BYD’s improving profit outlook is making the stock more attractive to investors. BYD’s forward earnings multiple has fallen to 18 times, compared to more than 50 times for Tesla. Despite the rosy outlook for BYD, the stock still faces stiff headwinds. Investor Berkshire Hathaway has been liquidating its shares in the company over the past year. Also, the European Union’s anti-subsidies probe into EVs made in China could lead to an increase in import duties for BYD’s cars sold in Europe. In addition, China’s struggling stock market has hurt confidence in Chinese stocks.
However, Snow Bull Capital, which owns positions in BYD Co and Tesla, said, “There is definitely a heavy China discount on the stock, but we don’t see it getting worse. Investors will have to wake up to BYD next year when its two high-end brands begin deliveries, and it exports noticeably into new markets.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
