[Reuters Breakingviews] BYD’s shareholders are too cautious by half

HONG KONG, March 14 (Reuters Breakingviews) - BYD 002594.SZ, 1211.HK is getting too little credit from shareholders. Sure, the Chinese electric car maker’s stock has soared 70% over the past year. And last week buyers raced to snap up $5.6 billion of new shares the company sold in Hong Kong. Yet the $146 billion group trades at a lower multiple than its main rivals, even though its core business which accounts for the bulk of its earnings sports better sales growth and margins.

That's BYD's autos unit, whose net income could hit $19 billion in 2028, based on applying a 15% tax rate to analysts’ pre-tax earnings estimates compiled by Visible Alpha. Strip out the company's $9 billion stake in listed unit BYD Electronic 0285.HK and the roughly $50 billion in value HSBC analysts ascribe to the battery and semiconductor units, and investors are valuing the carmaking division at less than 5 times 2028 earnings. That's less than the 17 times multiple of a basket of peers including Tesla TSLA.O, Chinese EV specialists like Li Auto 2015.HK, fellow autos giants Toyota Motor 7203.T and Volkswagen VOWG.DE.

There are headwinds, from tariffs and other unfriendly policies overseas to a price war at home. BYD’s share of the still-growing new energy vehicle market in the People’s Republic dipped to 27% in January from 34% in 2024 amidst fierce competition, according to consultancy Automobility.

The autos business looks likely to grow its top line by an annual average of nearly 20% to 2028, three times faster than the automakers in the basket. Its pre-tax margin is forecast to be around 5 percentage points higher, hitting almost 15% at the end of the period.

Moreover, BYD is catching up fast in an area where it was lagging: assisted and autonomous driving. Last month, Wang announced BYD’s “God’s Eye” smart-driving software will be included in all models priced from 100,000 yuan ($14,000).

It could be that BYD's other businesses are prompting investors to apply a conglomerate-like discount. That would be unfair, given how integral chips and batteries are to carmaking.

So, BYD Auto warrants a much higher valuation. Tesla's multiple of roughly 40 times estimated 2028 earnings is over the top. Assume BYD’s autos unit deserves half that and it would be worth $390 billion - more than twice the entire company’s current market capitalisation. It’s time BYD's investors showed more faith.

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CONTEXT NEWS

Chinese electric car maker BYD raised $5.6 billion through a sale of new Hong Kong-listed shares on March 3, according to filings.

The company is now including its “God’s Eye” advanced autonomous driving system in most of its models, including all vehicles priced at about 100,000 yuan ($13,688), according to an announcement on February 10. BYD had previously only offered such features, which enable cars to navigate highway traffic autonomously under a human driver's supervision, in models priced from $30,000.

Graphic: Pre-tax profit margin for BYD's auto business is expected to outstrip peers'