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Is BYD Eating Tesla’s Lunch In China?

The tech rally over early 2023 has been one of the main market stories of the year. Along with sizeable rallies in key indices such as the Nasdaq, individual stocks have been recording solid gains.

On the back of the massive devaluations we saw last year, the recent rallies in leading names such as Tesla, Amazon, and Microsoft have been highly encouraging the shareholders who clung to their holdings despite the downturn last year. 

Tesla performing well… but concerns over Chinese market

Tesla in particular has seen very strong gains, enjoying a more than 100% rally from the 2022 lows to the current highs. On the back of bumper Q4 results, the outlook for the stock is promising this year and reports of iconic investor George Soros ramping up his fund’s holding recently have been a big sentiment booster for the stock. However, there are some weak spots in the Tesla story. 

Weak demand & production issues 

The company was seen scaling back production in China last year due to falling demand. This is a theme that has continued into this year with Tesla recently announcing a reduction in price across key models in China in a bid to drive higher sales volumes. However, the issue is not totally in the hands of Tesla with a key component to the group’s swindling success in China being that of its rival BYD. 

BYD rivalry

BYD, which stands for Build Your own Dreams, has been backed by superstar investor Warren Buffet’s fund Berkshire Hathaway. The group’s backing of BYD made headlines this week when long-time right-hand man of Buffet, Bob Munger, told reporters that BYD had been his best pick over his career. Munger went on to say that the company was so far ahead of Tesla in China it was almost ridiculous. 

Along with the recent price cuts in its vehicles (Tesla cut prices twice last year), the group has also been struggling with capacity ability in China. Tesla was forced to halt production at its Shanghai site last year due to supply difficulties and is now reportedly temporarily closing the site again this year in order to upgrade the site.

BYD ramping up prices – still cheaper than tesla 

These price cuts and capacity issues stand in stark contrast top operations at BYD which has been hiking the price of its vehicles.  Given that Tesla vehicles are still far more expensive than BYD’s, the company has a clear advantage in terms of price, even with recent price hikes. In terms of real estate, BYD owns a huge amount of production assets in China and recently announced plans to build a new $1.2 billion battery production site. 

Looking at the difference in performance, the threat to Tesla’s business in China is clear. Last year, BYD tripled its vehicle sales. With the new planned battery site, this means that BYD will be able to produce more of its own batteries for its vehicles, keeping costs down and driving profit margins higher. 

BYD overtaking tesla

The ballooning performance of BYD saw the company overtaking Tesla last year as the number one seller of electric vehicles in China. BYD sold around 1.7 million vs Tesla’s 1.4 million. Interestingly (or rather, worryingly for Tesla), BYD is now branching out of China and entering the global market having begun deliveries in Malaysia, India, and Japan. At the same time that BYD is ramping up its sales and deliveries, the latest data shows that new orders have dipped at Tesla suggesting that further price cuts are likely. 

Outlook favours BYD 

Looking ahead this year, the current pace of BYD’s operations would suggest that it is likely to continue to grab market share from Tesla. While Tesla remains the biggest seller of all-battery electric vehicles (BEVs), BYD is quickly gaining ground and could easily overtake Tesla this year due to the advantages it has in terms of production capacity, battery making, and price. 

Finally, let’s take a look at the technical charts for both stocks. 

Tesla weekly chart 

Source: TradingView / FlowBank

 

Tesla shares have been trading in a broad bearish channel over the correction from 2021 highs. However, over recent months the stock has been recovering sharply and is now retesting the broken 208.31 level. This is an important level for the stock and if price can hold back above here, the outlook turns in favour of more gains towards 264.68 next, with a test of the bear channel top coming in ahead of that level. 

BYD weekly chart 

Source: TradingView / FlowBank

 

BYD shares have been trading within a shallow yet broad bull channel over recent years on the back of the sizeable rally we saw ahead of that period. The recent test of the channel lows and 43.35 level has seen the stock turning higher once again with price now testing the 62.23 level around the mid-point of the range. If price can get back above here, focus will be on a move back up towards the range highs around 82.26.

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