BYD’s rise challenges Tesla—and its valuation

livemint.com:

BYD and Tesla, the world’s top two electric-vehicle makers, have a lot in common these days—except in terms of market value, where the U.S. company is roughly seven times as big. It takes a lot of faith in chief executive Elon Musk’s promise of autonomy to rationalize the difference.

BYD’s Hong Kong-listed shares fell 6% Wednesday following the publication of its annual report, giving it a market value equivalent to roughly $86 billion, or 15 times forward earnings. The company had released preliminary sales and profit estimates in January, so there weren’t big headline surprises, but the final numbers were slightly lower than analysts expected. That plays into fears that China’s EV price war is sapping the market leader’s potential for profit growth as lower margins offset gains from shipping more vehicles.

The Chinese vehicle market remains highly promotional. There were price cuts on 25 models in February and a further 23 in March, according to a recent blog post by Cui Dongshu, secretary-general of the China Passenger Car Association—“an astonishing level from a historical perspective," he wrote. Tesla, which has a market value of $566 billion or 62 times forward earnings, is exposed too.

China accounted for 22% of its revenues last year. It cut prices in the country in early January and has since introduced discounts on insurance and financing. Even so, its Chinese sales this year are trending lower year over year, while inventories have risen.

The company reduced output at its Shanghai plant earlier this month, according to Bloomberg. BYD, which made headlines by overtaking Tesla in terms of total EV deliveries last quarter, is now catching up financially. Analysts expect both companies to report revenues of about