Bernstein analysts are advising investors to buy BYD stock again, reiterating their "outperform" rating and suggesting the market is overlooking the significant value of the company's battery division.
Bernstein believes BYD is currently undervalued, particularly given the substantial strength and growth of its battery operations. The firm stated in a recent note, "Amid current pressures in the Chinese EV market, BYD’s valuation appears compressed and overlooks the value and growth potential embedded in BYD’s battery assets."
According to Bernstein's assessment, the battery segment alone may be worth nearly as much as BYD's entire market capitalization.
The Evolution of BYD's Battery Technology
BYD originally began as a battery company, manufacturing cellphone batteries in the 1990s. Following its expansion into electric vehicles, the company introduced its "Blade" battery technology in 2020, initially for the Han electric sedan. This innovative battery technology was instrumental in BYD surpassing Tesla in total EV sales last year.
More recently, BYD's newer Blade-based energy storage system, known as Haohan, is gaining attention. Bernstein reports that this system is more cost-effective to produce compared to other utility-grade storage solutions.
BYD Batteries Attract Major Automakers and Tech Companies
The Bernstein report indicates that BYD's battery shipments increased by 47% in 2023 compared to the previous year, with an anticipated further growth of 35% in shipments for the current year.
Over half of these batteries are utilized internally for BYD's own vehicle production, which provides cost savings and greater control over manufacturing processes.
The remaining batteries are supplied to external clients, including prominent companies such as Xiaomi, XPeng, and Toyota. Bernstein's analysis further breaks down these external deliveries, with Xiaomi and XPeng each accounting for 25% of BYD's external battery shipments.
In addition to these partnerships, reports suggest that Ford is in discussions with BYD regarding the supply of batteries for its future hybrid vehicle models. While BYD has not confirmed these discussions, a Ford spokesperson reportedly stated, "We talk to lots of companies about many things. We don’t comment on rumors and speculation about our business."
If this potential deal with Ford materializes, it would represent a significant U.S. automotive brand integrating with BYD's battery supply chain.
Market Position and Financial Outlook
Bernstein identifies BYD as the world's second-largest battery manufacturer based on EV battery installations, shipping 70% more units than the third-place competitor. The firm estimates that BYD's battery division alone could be valued at $110 billion, nearly matching the company's current market value of approximately $115 billion. This valuation is also more than double Ford's current market capitalization of $55 billion.
Revenue generated from external battery sales constituted over 10% of BYD's total revenue last year, and Bernstein projects this figure to rise into the mid-teens in 2024.
On the automotive front, Bernstein forecasts 10% domestic growth for BYD, reaching 5.4 million units, and a 4.4% increase in exports, totaling 1.5 million units. In comparison, China's overall car market is expected to grow by only 1%, while the new energy vehicle segment, which includes both full-electric and hybrid vehicles, is projected to expand by 15.2%.
Investment Recommendation and Future Prospects
Bernstein has set a price target of 130 Hong Kong dollars for BYD stock, which translates to approximately $16.67. This represents a potential increase of around 30% from its closing price last Friday. The analysts anticipate the launch of at least 10 new BYD models this year, alongside significant advancements expected from "upcoming battery electric vehicle and battery technology upgrades."