BYD, backed by Warren Buffett, gets more love from analysts than Tesla

A 14 per cent slide in the Hong Kong-traded shares of BYD this year has not shaken analyst confidence in the Warren Buffett-backed Chinese electric carmaker.

Long-term growth prospects for China’s new-energy vehicle market are overshadowing concerns about tighter government subsidies and increasing foreign competition that have wiped out more than US$3 billion from BYD’s market value this year.

A majority of the 27 analysts who cover the company remain bullish, with 18 recommending buy, rising from 15 at the end of last year, data compiled by Bloomberg show. BYD’s recommendation consensus -- a Bloomberg gauge of analyst confidence in a stock on a scale of 1 to 5 -- stands at 3.96, above the 3.13 for global EV producer Tesla.

BYD’s “near-term earnings are under pressure from the adjustments of subsidies,’’ said Kelvin Lau, a Hong Kong-based analyst with Daiwa Securities. But its new models in the pipeline will qualify for higher amounts under the government’s revised subsidies, and thus BYD will see a recovery in the second half, he said.

The Chinese government has been cutting subsidies for new-energy vehicles to encourage competition, with a goal of phasing out the incentives by 2020. BYD last month predicted a drop of as much as 92 per cent in first-quarter earnings, citing decreased government handouts for new-energy vehicles. Government grants made up 23 per cent of BYD’s pre-tax profit in 2017, a jump from 11 per cent in 2016, according to Bloomberg Intelligence.

Yet China remains hugely committed to electric vehicle development. To cut roadside pollution and reduce reliance on oil imports, President Xi Jinping’s administration is implementing NEV production quotas, targeting a sevenfold increase in NEV sales, and considering a ban on gas guzzlers.