Although BYD Co. overtook Tesla Inc. in the last three months of 2023 as the world’s biggest seller of electric cars and is targeting a 20% rise in sales this year, posting net income just below analysts’ projections was enough to trigger the worst selloff in the Chinese company’s shares in a year.
BYD’s stock slumped 6.1% in Hong Kong after the carmaker reported 2023 net income of 30.04 billion yuan ($4.16 billion) for 2023 on Wednesday. While that was the midpoint of a preliminary forecast of 29 billion yuan to 31 billion yuan given in January, the result missed the 30.94 billion yuan average forecast by analysts.
The Shenzhen-based company told analysts of the sales goal in a call, people familiar with the matter said. Morgan Stanley analysts cited the figure in a report, adding that BYD is confident of steady profits this year, and calling it “impressive” against a challenging sector backdrop. BYD shares rose 11% last year.
The results, reaction and prognosis underscore the dramatic ups and downs in the market for electric vehicles. As an industry leader, BYD may struggle to keep hold of its share because of seasonal swings in sales during the Lunar New Year holiday in China — where BYD’s sales are concentrated. At the same time, smaller competitors — such as Li Auto Inc. and Zhejiang Leapmotor Technology Co. — have seen their share surge as they exceed earnings expectations.
The 20% growth target implies 3.6 million vehicle sales in 2024. BYD’s outlook for exports is strong, with the goal of selling 500,000 vehicles outside China this year, and then doubling that in 2025, according to people familiar with the carmaker’s call with analysts.
BYD sold 3.02 million electric and hybrid vehicles last year — a record — including 942,000 in the final quarter to meet its annual target. Discounting in that period including giving incentives to dealers caused net income to slip quarter-on-quarter to 8.67 billion yuan.
The overall stellar run delivered BYD a gross margin of 20.2% in 2023, higher than Tesla for the first time since 2017, which mustered 18.2%, its worst level since 2019. The company doesn’t just make its own EVs, it produces more of its own parts — including EV batteries and semiconductor chips — which means its EVs are more affordable, thanks to its long-term bet on being a highly integrated automaker.
Even BYD’s declaration of 3.1 yuan per-share dividend couldn’t assuage investors, who are focusing on more operationally-centered metrics.
“It’s the earnings miss,” said Xin-Yao Ng, director of investment at abrdn. “In my view at least, the concern might be around lower profits per car, which reads poorly for competitive intensity in the sector.”
Price War
This year, the automaker has kicked off a second round of China’s car-price war, discounting most of its range as it seeks to convince drivers to switch from gasoline-fueled cars to EVs, with a marketing slogan that “new era of electricity is cheaper than oil.”
Data from Chinese car portal 16888.com analyzed by Bloomberg News shows BYD has cut prices on more than 100 existing model versions from December, and relaunched a further 70 model trims with lower price. Its cheapest model, the Seagull hatchback, now goes for 69,800 yuan, or less than $10,000.
The carmaker is also moving into the luxury market, last month launching its most expensive vehicle — a 1.68 million yuan high-performance electric supercar pitted against the status symbols offered by rivals such as Ferrari NV and Lamborghini.
With competitors from upstarts like Li Auto Inc. to established players like Geely Automobile Holdings Ltd.’s EV brand Zeekr launching new models to better compete against BYD, the industry is facing slower growth for a second year. China’s Passenger Car Association expects shipments of EVs and hybrids to grow 25% this year — down from 36% in 2023 and a 96% pace in 2022.
