The BYD stock price has pulled back in the past few weeks as investors remain concerned about its margins and profitability. Its Hong Kong shares dropped to H$124 on Thursday, down by over 21% from its highest point this year. Let’s explore whether BYD is a good stock to buy today.
After China domination, BYD now eyes Europe
BYD, a company backed by Warren Buffett, has done well in the past few years as demand for its vehicles has soared. It has now become the biggest Chinese automaker, and the largest player in the new energy vehicle market.
Data shows that it had a 34% market share in the industry as it sold over 3.7 million units. A 34% share in China is a big deal because the country has hundreds of electric vehicle companies, like Nio, Xpeng, and Li Auto.
The company is now pushing to gain market share in the European market, which it believes is its most important area outside China. It has already passed Tesla as the biggest EV company in China.
Most recently, the company launched Dolphin Surf, which aims to be an alternative to Fiat 500 and VW Beetle. The company plans to spend over $20 billion in the region, whose auto market is estimated to be worth over $576 billion.
BYD aims to win in Europe as it faces substantial competition back at home. At the same time, it believes that margins in Europe are much healthier than in China, where competition has forced it to slash prices recently.
Read more: BYD shares climb to record high after company launches ultra-fast chargers
BYD hopes that the quality and cost of its vehicles will help it to capture market share from Tesla and legacy automakers like Renault and VW. For example, the company has come up with a battery technology that charges in five minutes.
BYD has also changed its business model in Europe, which explains why its sales have soared. It shifted to cheaper vehicles, is hiring employees from legacy manufacturers, and is continuing to grow its lineup. In a note to Bloomberg, Stella Li of BYD said:
“We want to bring the technology here, build a very strong after-sales service here, and then work with local partners to really merge us into part of a society, community here.”
BYD revenue is growing
The most recent results showed that BYD’s business continued growing in the first quarter. Its operating revenue jumped by 36% to 170 billion RMB, while its net profit more than doubled to 9.15 billion RMB.
BYD’s basic and diluted earnings per share jumped by 98% to RMB 3.12, and analysts anticipate that its business will continue growing.
The main thesis among analysts is that BYD will take advantage of the slowdown facing Tesla, a company that sells a handful of models and one that is struggling to grow.
BYD also has room to grow in other countries and accelerate its market share. Its target market are in Europe, South America, and in Southeast Asia. It is unclear whether the company will opt to grow its business in the United States, where it is facing huge tariffs.
BYD stock price technical analysis
BYD stock chart | Source: TradingView
The daily chart shows that the BYD stock price has pulled back in the past few weeks, moving from a high of H$157.8 in May to H$124.5.
It has moved below the 23.6% Fibonacci Retracement level at H$133.5. The stock also moved slightly above the 100-day Exponential Moving Average (EMA).
BYD share price has formed an ascending channel and is now at the lower side. The stock also formed a head-and-shoulders pattern. Therefore, a break below the lower side of the channel and the 100-day moving average will point to more downside, potentially to the 50% retracement point at H$106.20.
Read more: The electric shift: can BYD’s value proposition dethrone Tesla?
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