BYD's 66% gain catapults stock to near trillion yuan market cap

BYD, the Chinese electric vehicle (EV) maker backed by Warren Buffett, is on the cusp of entering the trillion-yuan-market-cap club as its production resilience and the government's consumption incentives helped spur a rally.

Shares of the Shenzhen-based company have surged 66 per cent since a March low through on Tuesday (Jun 28), which pushed its market valuation to around 950 billion yuan (S$196 billion). Further gains will allow the firm to hit the milestone, a rare feat which only a handful of mainland-listed stocks including Contemporary Amperex Technology and Kweichow Moutai have achieved.

BYD stood out amid this year's industry disruption as the company managed to navigate component shortages and Covid-19 lockdowns to post record monthly production and sales in May. Analysts expect the firm to sell 1.5 million vehicles this year, doubling from 2021, with its vertically-integrated business structure giving it a lead over rivals.

"BYD is the only company that has fully weathered lockdowns, chip shortages, and raw material price increases, and will be best positioned during the impending battery shortage," said Bridget McCarthy, a market research analyst at US hedge fund Snow Bull Capital, adding that the fund is betting on the stock.

China's EV industry slumped during Shanghai's lockdown - when not even one car was sold in the city in April and factories were forced to shut down or operate under heavy restrictions. Shares of automakers have since staged strong rebounds, as authorities unveiled a slew of stimulus measures including subsidies, higher quota for car ownership in Shanghai and Guangdong, and a possible extension of purchase tax exemption for new energy vehicles.

In Hong Kong, XPeng, Li Auto and Nio have surged over 70 per cent since mid-March through Tuesday. BYD's Hong Kong-listed shares closed at a record on Tuesday. On the mainland, Chongqing Changan Automobile, Guangzhou Automobile Group and Great Wall Motor are among top winners over the period.

Vertical integration

What differentiates BYD from other automakers is its various product lineup and footprints across the supply chain. The company may supply batteries to Tesla and is becoming more directly involved in the mining of lithium, the raw material crucial for EV batteries, on hopes that it could deliver a longer-term advantage over competitors in securing upstream resources.

"BYD's manufacturing is more vertically integrated so the automaker experienced less supply chain disruptions than peers," said Steve Man, an analyst at Bloomberg Intelligence. Expanded battery capacity and refreshed lineups have allowed monthly production and sales to hit new records, he added.

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Of the 34 analyst recommendations compiled by Bloomberg, 29 are buys, 4 are holds and with one sell. The average 12-month price target is 359 yuan, versus Tuesday's close of 352.9 yuan. BLOOMBERG