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Buffett-backed BYD beats Tesla in China

While shares of Tesla melting down recently due to demand concerns, Chinese rival BYD Co. are in tears as investors applaud the year of record revenue and the ever-expanding footprint of the world’s largest company. tram market.

U.S.-listed shares of Warren Buffett-backed BYD are up 8.5% over the past month compared with Tesla’s 40% drop. They also beat the measure of global electric vehicle makers, which fell 12% and outperformed domestic players like Li Auto Inc. and Nio Inc.

Investors see BYD as a clue to Chinaelectric vehicle sector and says the company is poised to be a major beneficiary as the nation reopens its economy. While that’s a boon for all automakers, BYD is still well positioned as it is capturing market share, has better pricing power, and controls much of its supply chain, making chips. own and the batterysaid the bull.

Kevin Net, portfolio manager at Edmond de Rothschild Asset Management in Paris, said: “We like the vertical integration of BYD, built over the years, which many are now trying to do. achieve. “And of course the added bonus of when China reopens this year.”

Last year was a difficult year for electric vehicle manufacturers globally. Rising interest rates and higher inflation hurt demand. Struggling supply chains and increased competition also hit the bottom line. For BYD alone, shares fell 27%, with losses accelerating after Berkshire Hathaway Inc. Buffett’s company, a long-time supporter, reduced a portion of their holdings.

However, BYD seems to have overcome many of those obstacles. The volume of production and sales of its new energy vehicles has tripled in a year despite the nation’s Covid Zero policy causing sporadic and prolonged citywide lockdowns.

Analysts are taking note. BYD has received the second-most equivalent buy recommendation among global automakers with a market value in excess of $1 billion, according to data compiled by Bloomberg, behind only Mahindra & Mahindra Ltd. in Mumbai. At least 13 brokerages confirmed that recommendation in the last week.

All of those gains are coming to Tesla’s loss, especially as it also tries to gain a stronger foothold in China. Shares of Elon MuskHis company fell 65% last year, dragged lower by his takeover of Twitter Inc. Shares on Tuesday suffered their biggest daily drop since 2020 after falling short of delivery estimates for the third straight quarter despite massive price cuts for Chinese consumers.

On Friday, Tesla made another price cut on some of its products in the Asian country due to fiercer competition. Meanwhile, BYD announced a price increase on a popular model late last year, and the company this week rolling launched the first of two new luxury electric vehicle brands it will introduce this year. Shares of the company fell as much as 7.7%, hitting their lowest level in more than two years on Friday.

“Tesla’s recent performance and manufacturing flaws have raised concerns about demand in the market,” said Christina Woon, chief investment officer for Asian equities at abrdn plc. “This is also why people are quite indifferent to the industry despite having some good work backlog.”

Still, there are reasons to be cautious. Bloomberg data shows that Tesla has been trading at a cheaper valuation than BYD since late December. And questions about how quickly the Chinese economy can recover will be a key driver. next sales.

Edmond de Rothschild’s Net added that could mean BYD stock will be volatile in the near term, as “general sentiment towards China remains a big question mark” given the pace of reopening and recovery of consumption in this country.

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