Tesla Vs. BYD: Is the Chinese Powerhouse the Better EV Bet Going Forward?

While stock markets have recently reached new all-time highs, electric vehicle (EV) stocks, including Tesla (NASDAQ:TSLA) and BYD (OTC:BYDDF), have failed to impress.

Tesla stock closed at $176.5 on Wednesday, marking a 2.35% decrease on the day. Year-to-date, Tesla's stock has fallen by 29%, and it has experienced an almost 6% decline year-on-year.

Similarly, BYD has recorded a 10.8% loss since the beginning of 2024 and an 11.7% drop over the past 12 months.

In contrast, the S&P 500 has registered a 7% gain since the start of the year and a 28% increase over the past year.

Given the underperformance of stocks that were once investor favorites (before the AI "frenzy" attracted attention), the question arises: Is this decline justified, or could it be a buying opportunity?

Investors Worried About EV Market Outlook

First of all, it's worth pointing out that concrete demand-related concerns are weighing on the outlook for the electric vehicle sector in general.

In particular, the Fed's rate hike, which is having an impact on car loans, has prompted consumers to think twice before buying an EV, given the higher purchase cost of this type of vehicle.

There are also doubts about profitability, as major manufacturers such as Tesla and BYD have recently aggressively lowered their prices in an attempt to stimulate flagging sales.

Moreover, as people have conducted their research, it's become clear that the carbon footprint of electric vehicles, considering construction and the supply chain, is not as environmentally friendly as initially thought in the fight against global warming.

Nevertheless, most economists continue to forecast growth in electric vehicle sales, which should rise by 9.5% in 2024 and 12.5% in 2025, with sales almost tripling by 2027 (compared with 2023).

So the current weakness in electric vehicle shares may also be only temporary.

In the remainder of this article, we'll take a look at the two leaders in the EV sector, Tesla and BYD, with an overview of their profiles and outlook, based on data and tools from the InvestingPro platform.

Tesla Vs. BYD: 2 EV Companies With Different Profiles

First of all, BYD surpassed Tesla for the first time in terms of quarterly sales in Q4 2023, with 526,000 vehicles sold, compared with 484,500 for Tesla.

However, although the two companies appear to be natural competitors in many respects, they are not direct rivals (yet).

Indeed, Tesla is more focused on developed countries, while BYD is stronger in emerging countries, especially in Asia. Moreover, while Tesla's vehicles are essentially high-end, BYD fills a gap left by Tesla in the entry-level segment.

Another difference is that BYD doesn't just offer electric vehicles, since the company also has a range of hybrid cars. In fact, of the more than 3 million vehicles BYD sold in 2023, just over half (1.6 million) were 100% electric.

By comparison, Tesla, which sells only 100% electric vehicles, sold a total of 1.8 million vehicles in 2023.

Who Has the Strongest Financial Profile: Tesla or BYD?

Analyzing a stock's financial profile can be a long and complicated process. And it can be even more complex when comparing two stocks.

Fortunately, there are now tools that make the task easier for investors and make financial analysis accessible to even the most inexperienced, such as InvestingPro's ProTips.

The ProTips summarize the masses of financial data available on InvestingPro for each stock into an intelligible list of strengths and weaknesses, with a clear color code (red for weaknesses, green for strengths) that gives an idea of a stock's profile at a glance.

It turns out that BYD has 9 positive ProTips and 2 neutral ProTips, while Tesla has 8 positive ProTips, but also no less than 11 negative ProTips (and 1 neutral).

See below for partial extracts from the TSLA and BYD ProTips:

Source: InvestingPro

Another tool available on the InvestingPro platform that is particularly useful for quickly analyzing a stock is the Financial Health Score, which takes into account several key financial metrics relating to stability and security.

Here, too, BYD does better than Tesla. BYD's score is rated as "very good".

Source: InvestingPro

Tesla's InvestingPro financial health score, while remaining fairly solid, is rated as less good:

Source: InvestingPro

A priori, from a financial profile point of view, BYD therefore appears to be a better stock than Tesla, at least in the current context, which could change after the publication of the next financial results, expected on April 17 for Tesla and March 27 for BYD.

Which Stock Has Greater Upside Potential?

About BYD shares, we note that analysts have an average target price of $41.32, i.e. no less than 67.2% above the current price.

The InvestingPro Fair Value, which synthesizes 10 recognized financial models in the case of BYD, stands at $33.92, reflecting a lower but still very solid potential of 37.3%.

Source: InvestingPro

For Tesla, analysts and models are also showing bullish prospects, but to a much lesser extent. On average, analysts are targeting $211.55 for TSLA, i.e. 19.8% above Wednesday's closing price.

Source: InvestingPro

Tesla's InvestingPro Fair Value shows an even more limited upside potential of 11.3%, at $196.40.

Conclusion

Several clues suggest that BYD is currently a (much) better bet than Tesla.

However, the risk of declining demand for EVs in a difficult economic climate, coupled with ever-increasing competition driving down prices (and margins), means that EV stocks should be considered risky bets for 2024.

Fortunately, in the frenetic market of recent months, there are a host of more or less obvious opportunities, which have already filled the pockets of many investors since the beginning of the year.

For example, the Titans de la Tech stock-picking strategy, one of the 6 ProPicks InvestingPro strategies, returned 20.8% in February alone.

Back in December 2023, the strategy included two stocks that have more than doubled in value since then, and which are still part of the strategy.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple perspectives and is highly risky, and therefore, any investment decision and the associated risk remains with the investor.