Buffett-backed BYD shakes up Tesla as China reopens economy

(Bloomberg) — As shares of Tesla Inc. Recently due to concerns about demand, Chinese rival BYD Co. is in trouble as investors lauded its record sales year and the breadth of its footprint in the world’s largest electric vehicle market.

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US-listed shares of Warren Buffett-backed BYD are up 8.5% over the past month versus a 40% drop for Tesla. They also beat global electric vehicle maker Scale, which fell 12%, and outperformed domestic peers Li Auto Inc. and Nio Inc.

Investors view BYD as a leader in China’s electric vehicle sector and say the company is poised to become a major beneficiary as its economy reopens. While this is a boon for all automakers, BYD is well positioned because it grabs market share, has better pricing power and controls much of its supply chain, the bulls say.

“We like BYD’s vertical integration, which has been built over many years, and which many are now trying to achieve,” said Kevin Nett, portfolio manager at Edmond de Rothschild Asset Management in Paris. “And of course the added bonus of reopening China this year.”

The past year has been a tough one for electric vehicle makers globally. Higher interest rates and higher inflation hurt demand. Supply chain hurdles and increased competition have also reached the bottom line. For BYD in particular, shares fell 27%, with losses accelerating after Buffett’s Berkshire Hathaway Inc. , a long-term backer, by reducing some of its stake.

However, BYD seems to have overcome many of those hurdles. Its production and sales of new energy vehicles tripled in a year despite the country’s Covid Zero policy which led to sporadic and prolonged citywide lockdowns.

Analysts take note. BYD has the second-most equivalent buy-in recommendation among global automakers with market values ​​exceeding $1 billion, according to data compiled by Bloomberg, after Mumbai-based Mahindra & Mahindra. At least 13 brokerages confirmed the recommendation in the past week.

All of these gains come at the expense of Tesla, especially as it tries to get a stronger foothold in China as well. Shares of Elon Musk’s company fell 65% last year, weighed down by the acquisition of Twitter Inc. On Tuesday, shares suffered their biggest daily drop since 2020 after missing delivery estimates for the third straight quarter despite offering huge discounts to Chinese consumers.

On Friday, Tesla made another round of price cuts on some of its products in the Asian country amid stiff competition. Meanwhile, BYD announced a price increase for a popular model late last year, and this week the company launched the first of two new luxury electric vehicle brands it will launch this year. Shares of the company fell as much as 7.7 percent to touch their lowest level in more than two years on Friday.

“Tesla’s recent failure in performance and production has compounded market demand concerns,” said Christina Won, Asian equity investment director at abrdn plc. “This is also why people have been somewhat lukewarm towards the industry despite the healthy buildup in some of the names.”

There are still reasons to be careful. Bloomberg data shows that Tesla has been trading cheaper than BYD since late December. Questions about how quickly the Chinese economy will recover will be a key driver for more sales.

Net Edmond de Rothschild added that this could mean future volatility for BYD shares, given that “general sentiment towards China remains a major question mark” with the pace of reopening and consumption recovery in the country.

Technical chart for today

US-listed Chinese stocks have risen sharply since their October low. The Nasdaq Golden Dragon China is up 72% in the period, compared to a 6% drop for the Nasdaq 100. The surge was prompted by Beijing’s decision to reopen its borders and put the country on track to emerge from three years of isolation under its Covid Zero policy. These stocks also had a good start into 2023, widening the performance gap since the start of the year.

Top tech stories

  • Tesla made another round of price cuts on its Model 3 and Y electric cars in China on Friday, while also introducing its Model S sedan and Model X to get a better grip on the premium end of the world’s largest electric vehicle market.

  • Samsung Electronics’ profits fell by the most in more than a decade, in a sign that the global economic slowdown may hurt demand for electronics more than expected.

  • Morgan Stanley says Apple shares could drop another 8%, which could be an “attractive” entry point as the iPhone maker comes under pressure from fears of fading demand and production hurdles.

  • The Salesforce Inc. Tableau division has been hit harder than other units in the company’s biggest round of job cuts ever this week, adding to a major reorganization that suggests the $15.7 billion acquisition fell short of expectations.

  • Taiwan has asked to join the discussions centered on China’s protest against US chip sanctions at the World Trade Organization, seeking to voice its say in a debate that could have ramifications for the global chip industry.

  • Vince McMahon, the controlling shareholder of World Wrestling Entertainment Inc. and former CEO, to return to the company and suggest a possible sale of the company.

  • The employees of Twitter Inc. Those who were laid off shortly after Elon Musk took over are awaiting details of severance packages months after they were let go, leading to more legal troubles for the new owner.

– With assistance from Subrat Patnaik.

(Updates to open the market.)

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