Shares of China's biggest electric vehicle maker, BYD, fell more than 4% on Tuesday after its 2023 profit forecast indicated that it might face financial challenges similar to Tesla due to the intense price war.
At one point, BYD shares were down almost 6%, but they recovered slightly to close down 4.4%, bringing the year-to-date decrease to 15%. Tesla shares have also dropped more than 22% this month.
Similar to Tesla, BYD's record-breaking vehicle sales in 2023 did not translate to improved profitability. The company sacrificed margin to maintain production volumes, particularly at its largest facility in Shanghai, where nearly a million vehicles are produced annually.
In the final quarter of 2023, BYD sold more battery-powered EVs than Tesla did, but Tesla still outsold BYD for the entire year and exported more vehicles from China. BYD became China's largest carmaker by selling over 3 million battery electric vehicles (B-EVs) and plug-in hybrids in 2023, marking a 62% increase from the previous year.
Despite forecasting a significant increase in 2023 net profit in its pre-release update, BYD's estimated figures fell short of market expectations. The company projected a full-year profit of between CNY29 billion ($US4 billion) and CNY31 billion, representing a 75%-87% increase from 2022.
Nomura analysts noted that the company's forecast was 4%-10% below their expectations and pointed out a fourth-quarter bottom line that appeared to be down 7%-27% sequentially. They expressed caution about the profitability of companies operating in the Chinese auto market, where competition is intensifying, and profitability is being sacrificed for market share.
Daiwa analyst Kelvin Lau mentioned that BYD's profit per car declined from the third quarter, likely due to discounts offered in November and December to boost sales.
Citi analyst Jeff Chung commented that the full-year profit forecast was in line with the bank's projection, but the fourth-quarter net profit fell below consensus, partly due to additional costs for dealer incentives at the end of the year. Sales-mix improvement on high-end products also fell short of expectations, with ongoing price wars taking a toll on the industry.