Chinese electric vehicle maker BYD Co Ltd, backed by U.S. investor Warren Buffett, reported on Sunday a huge 632 percent rise in its first-quarter net profit. It seems to be a quite of a competitor to Tesla who lost over $700 million in last quarter. But can we really compare these two companies?
BYD’s rise is most probably driven by strong demand for its new energy vehicles if we consider research made by China’s Association of Automobile Manufacturers. According to the research, Chinese citizens will buy at least 1.6 million electric vehicles this year. But that’s just the beginning of it.
According to Bloomberg, there are now 486 EV manufacturers registered in China – more than triple the number from two years ago. While sales of passenger EVs are projected to reach a record 1.6 million units this year, that’s likely not enough to keep all those assembly lines humming, prompting warnings that the ballooning EV market could burst and leave behind only a few survivors.
Through 2040, China should top the global leaderboard in EV sales. And BYD Auto is poised to take a large chunk of that market.
The Shenzhen-based car and battery maker BYD has a joint venture with Daimler AG in China and already last month they predicted first-quarter profit to rise by up to nearly 800 percent.
Profit surged to 749.73 million yuan ($111.4 million), up from just 102.4 million yuan a year ago, when its earnings fell sharply due to cuts to subsidies for electric vehicles.
BYD said it expected half-year net profit to rise to 1.45 billion yuan to 1.65 billion yuan, versus 479.1 million yuan in the same period last year.
The company sold 117,578 vehicles in the first three months this year, up 5.2 percent from a year earlier. BYD, whose popular models include its Tang-series electric cars, has said it aims to sell 650,000 vehicles in 2019.
Is it Possible to Compare Low-Level EV Producer With Tesla?
It seems to be a quite of a competitor to Tesla who lost over $700 million in last quarter with continuously having manufacturing issues, falling 13,000 vehicles short of the company’s 63,000 first quarter goal.
And not just that. Tesla stock is down about eight percent since Elon Musk‘s April 24 earnings call and has dropped almost 25 percent since the start of the year. In comparison, BYD stock is up over 10 percent on the year.
However, some analysts say that it’s not possible to compare those two companies.
Strategy Analytics’ Kevin Li said that he thinks BYD is not seriously competing with Tesla. He said:
“BYD has a narrow focus on low-level electric vehicles. Taxis and rideshare drivers comprise one-third of the company’s electric vehicle sales. Tesla, on the other hand, produces luxury vehicles in which the cheapest model, the Tesla Model 3, starts at $35,000.”
Also, we shouldn’t forget the fact that BYD reached profitability largely due to government subsidies on both the national and local level. Unfortunately, these subsidies are winding down, and the majority will disappear by 2020. The loss of them could cause a blow to the BYD stock considering the company received over $1 billion in subsidies in 2016.
Li may have a point especially if we consider that Tesla recently decided to enter the competition with Uber and Lyft by using its strategy for an autonomous ride-hailing fleet.
Also, this might be a chance to “buy low” as one portfolio manager proposes. Tesla’s stock may have shed nearly one-third of its value year-to-date, but if you ask Cathie Wood of Ark Invest – it’s just a great buying opportunity.
Wood also blames Wall Street analysts for getting her favorite stock so wrong:
“The analysts following this stock don’t know how to analyze it…It’s something for everyone and no one can pull it all together.”
Finally, after discovering that $TSLA has collected 10 billion miles of driving data, compared to $GOOG’s 15 million miles, well what more is there to say about an AI project?
— Cathie Wood (@CathieDWood) April 30, 2019
Analysts may be focused on Elon Musk’s company failing to meet production and earnings estimates and also, do not forget that Tesla was in under the SEC investigation as well. Now that it finally came to some closure, and if Ark Invest’s Wood is right, no one is going to be able to catch Tesla’s technology in the end.