BYD Likely To Become The World's Top-Selling EV Maker With 3.01M Deliveries In 2023

We previously covered BYD Company Limited (OTCPK:BYDDF) in July 2023, discussing the automaker's unique prospects as a Chinese-ADR, resulting in its geopolitically discounted valuations compared to Tesla's (TSLA).

Then again, Mr. Market still prudently rewarded the stock with higher valuations compared to the sector medians, thanks to its sustainable gross profit margins and vertically integrated supply chain.

In this article, we will be discussing BYDDF's profitable growth cadence, with growing global sales and expanding gross profits, despite the ongoing domestic price war in China and the uncertain macroeconomic outlook globally.

The automaker is also likely to achieve its ambitious delivery target, likely to replace TSLA's crown as the world's top-selling EV maker in 2023, and Toyota (TM) as the top-selling automaker in the far future.

The BYDDF Investment Thesis Remains Robust, Thanks To The Profitable Growth Cadence

For now, we maintain our optimism that BYDDF may be able to deliver its ambitious sales target of between 3M and 3.6M vehicles in 2023, sustaining its high growth cadence thanks to the robust consumer demand.

For example, the automaker recorded an excellent sales of 274.08K plug-ins in August 2023 (+4.9% MoM/ +57.5% YoY), arriving at a cumulative sum of 1.78M YTD (+83% YoY).

These numbers also suggest BYDDF's excellent production ramp up, well exceeding TSLA's H1'23 deliveries of 920.5K vehicles (+63.2% YoY), based on the Q1'23 numbers of 440.8K and Q2'23 of 479.7K.

Assuming a similar MoM growth cadence over the next four months, we believe BYDDF may achieve approximately 3.01M of deliveries in 2023 (+62.7% YoY) as well, hitting its previous guidance. This is compared to TSLA's guidance of 1.8M vehicles in 2023 (+32.3% YoY).

Nonetheless, it appears that BYDDF may miss its international sales target of 800K units in 2023, attributed to the cumulative export of 117.44K YTD.

This is based on January 2023 export sum of 10.4K, February 2023 of 15K, March 2023 of 13.31K, April 2023 of 14.82K, May 2023 of 10.2K, June 2023 of 10.53K, July 2023 of 18.16K, and August 2023 of 25.02K.

Then again, BYDDF's export sum in August 2023 marks a "new monthly record," implying a robust global demand for its offerings, thanks to the intensified partnerships and expanded sales team internationally.

While there is no detailed information on the automaker's export destinations, we believe much of its EVs may be exported to the EU. For example, BEVs now comprise a large segment of the EU new registrations, with 21% (+9.4 points YoY) in market share at 165.15K units (+118.1% YoY) in August 2023.

Investors must also not forget that BYDDF produces plug-in hybrid cars as well, with the EU new registrations recording 58.55K units in August 2023 (+5.5% YoY), maintaining its market share of 24% (inline YoY).

With the WTI crude oil hitting $90.78 per barrel at the time of writing (+11.2% MoM/ +14.2% YoY), higher by +51.3% compared to the 2019 averages of $60, it is unsurprising that fuel prices in the EU have also risen to an average of €1.67 at the time of writing, higher by +31.4% compared to €1.27 in 2019.

The same has been observed for the fuel prices in the US, rising to $3.83 by September 25, 2023, higher by +53.2% compared to $2.50 in 2019. Then again, since BYDDF does not sell its EVs in the US, this comparison is simply for context.

Either way, due to the narrowing gap in cost parity of charging EVs to gas-powered vehicles, depending on brand/ model type/ charging location, we believe the robust demand for EVs may remain healthy at this time of uncertain macroeconomic outlook.

If anything, BYDDF's YTD sales are still highly concentrated domestically comprising 93.4% of its overall sales, as the automaker secured 11.98% of market share with 230.07K units by August 2023.

Despite the management opting to partake in the domestic price war since early 2023, the Chinese automaker continues to expand its gross margins to 18.3% in H1'23 (+4.8 points YoY), compared to TSLA's moderation to 18.7% (-8.5 points YoY) at the same time.

This is a testament to BYDDF's vertically integrated supply chain, which has directly contributed to its bottom lines while improving the efficiency of its operations.

As a result of its excellent prospects domestically and internationally, we maintain our conviction in BYDDF's execution, with it likely to overtake TM's crown as the world's top-selling automaker in the far future, with a projection of over 10M units in annual sales by early 2030s.

So, Is BYD Stock A Buy, Sell, or Hold?

BYD Valuations

For now, the BYDDF stock trades at impacted valuations, with FWD EV/ Sales of 1.00x and FWD adj P/E of 18.70x, compared to its 1Y mean of 1.14x/ 29.85x and 3Y pre-pandemic mean of 1.01x/ 29.09x, respectively.

These numbers are overly pessimistic indeed since the automaker is expected to generate impressive top and bottom line CAGRs of +28.7% and +36.1% through FY2025, respectively, much improved compared to its normalized CAGRs of +26.4% and +20.3% between FY2016 and FY2022.

In addition, we maintain our belief that BYDDF and TSLA remain the "two lead horses" for the long-term EV race, especially due to the nascent adoption thus far. Therefore, in comparison to the latter's FWD EV/ Sales of 7.65x and FWD adj P/E of 71.62x, we believe that the former's normalized valuation remains more than acceptable.

Based on the consensus FY2025 adj EPS estimates of $1.97 and BYDDF's normalized P/E of 29x, we are also looking at an excellent long-term price target of $57.13, implying an upside potential of +84.9% from current levels.

BYD 3Y Stock Price

For now, BYDDF appears to be trading well between its critical support levels of $27 and resistance levels of $35 as well, implying the stock's established trading cadence.

As a result of the highly attractive risk/ reward ratio, investors may still add depending on their dollar cost averages.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.