Source: Wall Street News
Author: Bu Shuqing

Since last year, BYD has further accelerated the pace of going overseas. According to statistics from the China Securities Report, by the end of May, BYD's exports of new energy vehicles had exceeded 10,000 units for 7 consecutive months.

Over the past few weeks, J.P. Morgan's global automotive team has comprehensively investigated BYD's major overseas stores, believing that BYD's domestic NEV business and overseas expansion will bring potential upward space, saying they are still optimistic about BYD.

J.P. Morgan analysts Lai Yizhe and Shen Jiajie said in a research report released last week that BYD will continue to dominate the field of plug-in hybrids, and that growth in the Southeast Asian and European markets will help exports continue to rise.The profit margin is expected to improve further in the second half of the year, and gross margin for the whole year is expected to reach 20%.

J.P. Morgan willBYD's sales forecast for 2023 was raised from the previous 2.6 million units to 2.8 million units, and its target prices for Hong Kong stocks and A-shares were raised to HK$300 and HK$280 respectively, with increases of around 10%, maintaining the “increase in holdings” and “neutral” ratings respectively.

Catalysts: plug-in hybrids, gross profit margin, exports

Regarding BYD, J.P. Morgan believes investors should focus on the following three points:

Developments in the field of plug-in hybrids:In the first 5 months of this year/2022, plug-in hybrids accounted for 28%/23% of the total NEV passenger car market, up from 18% in 2021. We believe that plug-in hybrids can maintain steady growth in the next few years, and BYD may still maintain its dominant position (there is no big competition from any foreign brands, only some competition from Chinese peers, such as Great Wall Motor and Geely).We expect BYD's plug-in hybrid sales to account for 69% of the market share this year, up from 64% in 2022.

Profit margins are expected to improve in the second half of 2023:Entering the second half of 2023, we expect BYD's gross margin to improve further due to improved product structure, higher profit margin momentum, and anticipated increase in sales volume contribution.We currently expect BYD's overall gross margin to increase from 17% in 2022 to around 20% this year.

Exports are another driver of long-term upward space, and may also be a downside protection for profits, as domestic business competition is intense.BYD's exports in the first five months of this year reached 64,000 vehicles, accounting for 14% of China's total NEV passenger car exports (up from 8% in 2022). We believe BYD should initially be able to grow faster/stronger in the Southeast Asian market because there are not many global competitors with affordable products and attractive technical content (such as ADAS) in the NEV sector in the region. Following Southeast Asia,We think of Europe as another growth regionIn particular, in the field of low-cost products, the main challenge facing BYD in Japan is to increase brand awareness.

Overseas store survey minutes

J.P. Morgan visited BYD's major overseas stores, including Japan, Thailand, France, Germany, Singapore, and Hong Kong, China.

In Europe, J.P. Morgan investigated BYD's dealership stores in Paris and Frankfurt and discussed the launch of BYD products in France and the promotion of an independent distribution network throughout the region.

J.P. Morgan said,The product lineup is very competitiveThe price of the BYD Dolphin will be lower than the Atto 3, and it is clearly competitive in the price range below the VW ID.3 and Tesla Model 3.

In the medium term, J.P. Morgan expects Tesla, BYD, and other Asian automakers to occupy about 10% of the European market.

inIn the Japanese market, BYD sells only one modelThe price of Atto3 (yuan plus) is 4.4 million yen (about 220,000 yuan), there is only one level, and options are limited.

BYD ships 200 cars to Japan every month, and delivery only takes one month, while most Japanese domestic models and competitors' imported models require 6-12 months of waiting time.

Thailand is one of BYD's most important overseas destinations.There are 32 showrooms.

J.P. Morgan visited BYD's Rama-3 store in Bangkok, which offers two versions of the Atto3 — standard battery life of 410 km (price of 1.099,900 baht) and long battery life of 480 km (price of 1.99,900 baht), the latter being in better condition.

The main ideas of this article are from J.P. Morgan. Authors: Lai Yizhe and Shen Jiajie. Original title: “BYD's Overseas Ambitions and Our Field Research: Yokohama, Bangkok, Paris, and Frankfurt”

Editor/Somer