Bernstein flashes buy signal on BYD over 'undervalued' battery unit

Bernstein analysts are telling investors to buy BYD again, repeating their outperform rating on the stock and saying that the market is missing the real value of the company; its battery business.

Bernstein said BYD looks undervalued, especially with how strong its battery side has become. “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,” Bernstein wrote in its latest note.

According to them, that one segment alone might be worth almost the same as the company’s total market cap.

BYD was a battery company first, building cellphone batteries back in the 1990s, but after moving into electric vehicles, it rolled out its “Blade” battery in 2020, starting with the Han, a sleek electric sedan. That battery tech helped push BYD past Tesla in total EV sales last year.

Now the company’s newer Blade-based energy storage system (called Haohan) is making noise again. Bernstein said it’s cheaper to build than other utility-grade storage options.

BYD batteries attract Ford, Xiaomi, and XPeng

The report said BYD shipped 47% more batteries in 2023 than the year before. This year, shipments are expected to grow another 35%.

More than half of those batteries stayed in-house, used in the company’s own vehicles. That saves them money and gives them more control over production.

The rest went out to companies like Xiaomi, XPeng, and Toyota. Bernstein broke it down even further: Xiaomi and XPeng each made up 25% of BYD’s external battery deliveries.

There’s more. According to the Wall Street Journal, Ford is now in talks with BYD to supply batteries for future hybrid vehicles. BYD didn’t confirm. “We talk to lots of companies about many things. We don’t comment on rumors and speculation about our business,” a Ford spokesperson allegedly said when asked.

Still, if Ford goes forward with it, that would be a big U.S. brand tapping into BYD’s battery supply line.

Bernstein says BYD is the second-largest battery maker in the world when measured by EV battery installations. They shipped 70% more than whoever was in third place. The firm says the battery division alone could be worth $110 billion, almost equal to the company’s current market value of around $115 billion. That’s more than double Ford’s current market cap of $55 billion, by the way.

Revenue from selling batteries to outside clients was more than 10% last year, and Bernstein thinks that could move into the mid-teens in 2024.

On the car side, the firm sees 10% domestic growth for BYD, or 5.4 million units, and 4.4% growth in exports, reaching 1.5 million. China’s total car market, according to the country’s auto group, is only expected to grow 1%, while new energy vehicles (which includes full-electric and hybrid) are expected to climb 15.2%.

Bernstein slapped a price target of 130 Hong Kong dollars on BYD stock, or about $16.67. That’s around 30% higher than where it closed last Friday. The analysts expect at least 10 new BYD models this year. They also see big movement coming from “upcoming battery electric vehicle and battery technology upgrades.”

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