In the fiercely competitive electric vehicle (EV) sector in China, BYD (BYDDF, Financial) experienced a notable setback when it missed its 2023 earnings forecast by just under 1 billion yuan ($138 million). This development has sparked concerns about whether the leading EV manufacturer can maintain its robust profit growth amidst an escalating price war. Despite nearly tripling its final dividend payout, BYD's stock took a hit, dropping as much as 4.7% in Hong Kong trading, marking its most significant decline in nearly two months following the earnings announcement.
Contrastingly, BYD's smaller rivals, such as Li Auto Inc. (LI, Financial) and Zhejiang Leapmotor Technology Co., witnessed a surge in their shares after surpassing earnings expectations. While many of these competitors are yet to achieve profitability in their EV operations, they have generally managed to expand margins and reduce losses. However, BYD's increased per-share dividend of 3.1 yuan failed to alleviate investor concerns, who are more focused on operational metrics and profitability per vehicle.
Investment director Xin-Yao Ng from abrdn pointed out the earnings shortfall as a significant concern, highlighting apprehensions about diminishing profits per car, which could indicate increasing competitive pressures within the sector. According to Morgan Stanley analysts, BYD's profit per vehicle likely saw a 25% sequential drop in the fourth quarter. Additionally, the average selling price of its vehicles probably decreased for the fourth consecutive quarter, as discounts on mass-market brands overshadowed gains from exports and premium offerings.
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