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The backstory: BYD, the Chinese electric vehicle (EV) company backed by famous investor Warren Buffet, is a heavyweight in the EV world. It’s Tesla’s biggest competitor and has been expected to beat out Tesla as the world’s biggest EV maker this year. In the first quarter of 2023, it outpaced Volkswagen to become China's top-selling car brand.
But BYD is facing some challenges. Last year, Tesla started a price war in the Chinese market. This led to a US$18 billion drop in BYD's value in February, as the company also had to slash prices to keep up. On top of that, now Huawei has joined the EV scene. Although it’s mainly known for telecommunications and smartphones, the company entered the market with its first EV in 2021.
More recently: In October, the EU launched investigations into subsidies for Chinese EV makers, which could affect their efforts to expand overseas. Later that month, Buffet's Berkshire Hathaway sold over 820,000 shares of BYD and pocketed about HK$201.73 million (US$25.78 million). This lowered the firm’s investment in the company to less than 10%. But BYD still posted record earnings in the quarter ending in October, with its net income growing 82% from the same time last year.
The development: BYD is facing some headwinds ahead. Even though it did great in October, November brought a 12% dip in its shares because investors aren’t so sure about the company meeting its sales goals. Many also wonder whether BYD can keep up with the competition when it comes to advanced software and smart features – something BYD would have to invest more in to keep up with newer peers like XPeng and Li Auto.
Its recent drop in stock prices might look like a good deal for bargain hunters, but there's a growing number of skeptics. In the past three weeks, more people are betting against BYD in the long term. The once speedy growth that made it a big deal has hit the brakes lately, making investors wonder if the EV maker can pull off its ambitious plans. Analysts are saying the company needs a makeover and should update its lineup and launch more competitive products to stay in the game, especially with competition in the market ramping up even more in 2024.
“The growth profile of BYD is being questioned,” and the company could wind up losing market share, said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management. “The arrival of Huawei in the EV segment will definitely shorten the time-to-market” for new Chinese products, and BYD is “more vulnerable” given its lagging tech.
“BYD will need to refresh its model lineup or have more competitive model launches given the challenging sector competition into 2024,” wrote analysts including Tim Hsiao and Shelley Wang in a note.
“The emerging alliance led by Huawei, the unrivaled leader in intelligent connected vehicle and autonomous driving technologies in China, will constitute a formidable threat to the established incumbent BYD,” wrote UOB Kay Hian analysts, including Ken Lee and Bella Lu in a note.
"BYD is very, very strong," said Oliver Blume, CEO of Volkswagen, during an event at the Shanghai auto show in April. "In the end, not everything is about volume. We want to have a successful business, and it is more important to be the best international group here in China."