Buffett-backed BYD’s market cap seen rising 70 per cent by 2022 as UBS warns against red-hot EV trades

  • BYD should be worth at least 1.5 trillion yuan (US$231.6 billion) by 2022, or 70 per cent above its current market cap, CSC Financial analysts estimate
  • UBS Group says risks on popular bets like EV makers and chip makers are piling up with weak prospects for more monetary policy easing

The red-hot trades in shares of China’s electric-vehicle (EV) makers are splitting stock analysts as differences in policy assessment and valuation cloud the sector’s outlook.

Industry leader BYD, which counts Berkshire Hathaway among its shareholders, should be worth about twice its market current value, according to CSC Financial, a mainland brokerage backed by Citic Securities, citing the potential of an eight-fold increase in demand for green cars in smaller provincial cities.


The bullish take contrasted with UBS Group’s view on the market. The Swiss investment bank cautioned that risks associated with popular bets, such as new-energy vehicles and chip makers, are building up because there is no room for further easing of monetary policies to buoy demand.

The difference in opinion calls for caution after an upsurge has lifted the EV sector to trade at an average of 10 times the book value. EV-linked stocks from BYD to lithium-battery maker Contemporary Amperex Technology have been on a roll this year, as other fast-growing industries such as technology and private tutoring have come in the crosshairs of Beijing’s crackdown.

Behind the scenes at BYD Auto: China’s biggest electric vehicle factory

BYD, the Shenzhen-based EV maker controlled by billionaire Wang Chuanfu, should be valued at no less than 1.5 trillion yuan (US$231.6 billion) by 2022 or 169 times its projected earnings, analysts led by Cheng Siqi and He Junyi at CSC Financial wrote in a report on Wednesday. That is about 70 per cent above its current market cap of 884 billion yuan.

“For new-energy vehicles, it’s a blue ocean market in China’s second-tier and even lower regions that has eight fold room for growth,” the analysts said.

If the forecast comes true, BYD could potentially be elevated as the third-biggest company on the mainland’s exchanges. Kweichow Moutai and Industrial and Commercial Bank of China are currently capitalised at 2.2 trillion yuan and 1.6 trillion yuan, respectively.

Shares of BYD rallied 4.7 per cent to a record 308.98 yuan in Shenzhen on Thursday, adding to a 59 per cent gain this year. Its Hong Kong-traded stock has climbed 36 per cent year to date.

Chinese XPeng electric car can drive and park by itself

While the momentum in hot trades from renewable energy to semiconductors may continue to outperform in the short term, the Star Market and the ChiNext board, the major listing venues for China’s strategic emerging industries under the Shanghai and Shenzhen exchanges, face headwinds amid dim prospects of further liquidity easing, according to UBS.

“We do not think liquidity will ease further in the near term unless there is a material downside risk to the economy,” said Meng Lei, a Shanghai-based strategist at the Swiss bank. “Thus there is limited downside for [interest] rates and Star/ChiNext could lose momentum.”

The central bank has already moved to put the brakes on credit growth to avert an asset bubble that could jeopardise China’s recovery from the pandemic.

Aggregate financing, the broadest measure of credit supply from banking loans to shadow banking, grew at the slowest pace since February 2020 in July, according to official data.

Some other signs bode ill for the EV trade. Li Auto, one of the three Chinese EV makers trading in the US, was given a cold reception on its debut after a second offering in Hong Kong on Thursday, with the shares finishing almost unchanged.

China’s most bullish analyst Li Daxiao has questioned the valuation of EV stocks after some fund holders mocked seasoned fund managers for not buying enough of the shares.

Author: Zhang Shidong, SCMP

You might also like