The electric vehicle market has been heating up in recent years, with Tesla and BYD emerging as key players in the industry. Tesla, a long-time investor favorite, has dominated the global electric vehicle market for years. However, data from the fourth quarter of 2023 revealed that BYD has dethroned Tesla as the top EV maker globally. With BYD’s aggressive expansion overseas and its impressive performance in the Chinese market, investors are now faced with a critical question: Should they stick with the tried-and-true Tesla or venture into the up-and-coming realm of BYD? Let’s dive into the opinions of industry experts to gain some insights.
According to a report by Bernstein, 2024 looks to be a tough year for Tesla in terms of profitability. The report suggests that Tesla will struggle to achieve its target of 50% growth in deliveries, forecasting that growth will only reach 20% in both 2024 and 2025. Furthermore, Bernstein points out that Tesla’s margins and earnings per share for FY2024 are expected to be materially below consensus due to ongoing cost cuts. The impact of price cuts in the previous year is also predicted to result in a potential downside to gross margins, putting further pressure on Tesla’s financial performance. As a result, Bernstein analysts have given Tesla an underperform rating with a price target of $150, implying a significant 36% downside.
HSBC echoes Bernstein’s concerns, providing a “reduce” rating for Tesla and a price target of $146, indicating a potential downside of 37.8%. While acknowledging Tesla’s capabilities as an electric vehicle manufacturer, HSBC believes that the uncertainty surrounding the timing and commercialization of Tesla’s various ideas, such as Dojo, FSD, and Optimus, is a cause for concern. The bank argues that Tesla’s valuation is not solely driven by its prowess in the EV market but rather the successful execution of these ideas. However, HSBC feels that the timeline for these initiatives may be longer than what the current valuation suggests, adding another layer of uncertainty for investors.
On the other hand, Bernstein highlights BYD’s strengths in terms of cost structure and product innovation, making it stand out among its competitors. With an advantageous cost structure and the ability to meet consumer preferences, BYD is positioning itself well in the competitive EV market. The report applauds BYD’s capability to quickly adapt its products and respond to market demands while also praising its viable export strategy. Currently trading at attractive price-to-earnings ratios for 2024 and 2025, Bernstein believes that BYD’s stock is undervalued. As a result, they give BYD an outperform rating and a price target of 334 Hong Kong dollars ($43), reflecting a potential upside of 63%.
HSBC shares similar sentiments, remaining constructive on BYD’s prospects in 2024. The bank points to rising exports as the next leg of growth for BYD, generating higher margins for the company. HSBC forecasts a volume and earnings growth of 28% and 30%, respectively, for the year 2024. With its strong market position and promising growth potential, HSBC gives BYD a buy rating and a price target of 356 Hong Kong dollars, implying an impressive 73.8% upside. Moreover, analysts covering BYD have given it a 94% buy rating and a projected 56.2% upside to the average price target, signaling widespread optimism about the company’s future performance.
While Tesla has been the reigning champion in the electric vehicle market for years, BYD is rapidly gaining ground and challenging its dominance. The opinions of industry analysts suggest that Tesla may face difficulties in terms of profitability and valuation in the coming year. On the other hand, BYD’s advantageous cost structure, product innovation, and promising export strategy position it as a strong contender. Investors looking for the next EV growth opportunity might find BYD’s stock appealing due to its undervalued nature and predictions of significant upside potential. However, it is crucial to consider the inherent risks and uncertainties associated with investing in the rapidly evolving electric vehicle market. As always, diligent research and careful analysis are paramount when making investment decisions in this ever-changing sector.
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