Shares of electric car maker BYD fell on Tuesday after the company released its profit forecast for last year.
While this update wasn’t too bad, investors are worried that 2024 sales will be hit by EV’s “destocking” (a situation where customers stop ordering and reduce existing inventory to conserve cash). I’m starting to worry that this might be the case.
The Warren Buffett-backed Chinese company said it expects profits to rise 75% to 86% in 2023 from a year ago after posting record sales. This was in line with Wall Street’s expectations for full-year results.
However, the fourth quarter numbers imply lower profits than the third quarter. Citi analyst Jeff Chan said in a note Monday that investors were looking for near flatness from the prior quarter. The decline in fourth-quarter profit reflects recent price discounts, he added. Falling prices are a challenge for the entire EV industry.
Tesla started 2023 on a strong note, significantly lowering prices around the world. The average price of a Tesla car fell by about $8,500 in 2023.
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The earnings update isn’t too bad considering what investors already know. Still, BYD shares fell 4.4% in Hong Kong trading. The company’s American deposit receipts fell 5.5% in premarket trading Tuesday.
S&P500
and
Nasdaq Composite
Both futures are down about 0.1%.
Tuesday’s decline came despite already weak performance. BYD stock is currently down 17% since the beginning of the year, and shares of other EV manufacturers have fallen as well. Tesla stock is down about 23% since the beginning of the year, and NIO stock is down about 32%.
Price cuts to clear dealer inventories in China have weighed on investor sentiment, leading to concerns about inventory depletion.
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In China, auto dealer inventories at the end of December amounted to 1.8 months of sales, down from 2.4 months in November but up from 1.5 months in December 2022, according to data tracked by Chong. He expects automakers’ sales to recover in March after a turbulent few months for China’s auto sector.
Investors will know the outlook for the first quarter when EV makers, including BYD, report January sales figures on February 1st.
BYD overtook Tesla
,
The American EV maker, run by billionaire Elon Musk, will start selling battery EVs in the fourth quarter of 2023. Since this feat, the stock price has fallen. Recent price cuts, rising inventories, and disappointing fourth-quarter profit forecasts all highlight how competition among EV manufacturers has intensified. The situation is particularly severe in China, the largest market for EVs.
There are other signs that demand may not be growing as strongly as expected.French car manufacturer Renault
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on Monday called off its planned initial public offering of its EV unit Ampere Shares, saying slowing EV growth in Europe played a role in the decision.
Email Brian Swint (brian.swint@barrons.com) and Al Root (allen.root@dowjones.com).