Lately EV stocks haven't been doing so well. Due to a global chip shortage, their production outputs have been slowed which will likely have effects on earnings. Assuming that this is a temporary problem, however, this should be a temporary woe and EV companies will still enjoy plenty of upside, possibly later this year.
On top of that, China stocks in general have seen some pain lately, with the CN A50 index hovering between 15-20% below highs. A further decline in the Chinese stock market could also mean more pain for BYD.
Why BYD?
BYD (HKEX: 1211) has been one of my favourite EV companies since early last year. They have solid fundamentals, with comparatively little debt, profits quarter-after-quarter and also a long history. BYD was never traditionally an EV company, and actually just started out as a battery company. In 2002 however, it bought an automotives company and started selling EVs later on as a way to sell more of their batteries. Since the demand for EVs has soared in China, BYD has came to meet those demands. You can now find BYD EVs everywhere in China - they are powering taxis and busses all over the country.
Why not BYD?
Due to BYD's age, and relatively slow speed in implementing new strategies, there are some who argue it's not really a growth stock. There are also those who are worried about BYD's lack of EV market outside of China. For example, a strategy for European expansion was only unveiled last year, and while they have been making efforts to break into the US, it hasn't really yielded much of a result. This, coupled with the fact that it's not available on the major US stock exchanges (it's only traded on OTC markets in the US,) makes it a little unattractive for some. Not being much of a global company for starters, and secondly not being easily available for those retail traders that pump up stocks like TSLA and NIO means that this stock hasn't seen as much love as it deserves. BYD operates more in the shadows, and doesn't seem to get anywhere as near much as attention as some of the rising stars we are seeing being traded on Robinhood today.
That being said, the fact that they have plans for international expansion is great news. If they can keep it up at a rapid pace, we could start seeing BYD cars a whole lot more in Europe (to be honest, I've never seen any on European roads so far.) Once again, BYD has been involved with automotives since 2002. They have been involved in lithium batteries since 1995. This company has real potential to become an EV superstar. Even without EVs, they have a great market for batteries - for example, recently they have been in talks with Hyundai to provide batteries for their EVs. It also already has a few partnerships with companies like Toyota and Daimler in Germany (with which it produces the Denza brand.)
Fundamentals
Q1 Earnings for this year were excellent - they reported a growth of 110.7% first-quarter profit since last year. Sales of cars in China have also been steadily increasing - selling 104,145 vehicles in the first quarter, 69.97% higher than a year earlier.
Apart from that, debt is pretty low and cash flow is healthy. This puts them in a great position for weathering the current turbulence surrounding EV companies. We saw a free cash flow last year of around 33.6bn CNY. I'd like to see more of this cash flow reinvested into growing the business - but let's see what they have up their sleeve.
Technicals
Daily chart
Technically speaking the chart is quite closely following the greater Chinese market according to the CN A50 index. There's no clear indication of a downside target, although horizontal resistances are found at ~$90 (2020 high, also happens to be 200 weekly MA) and ~$69 (2020 floor.) These targets are quite a steep drop from current levels, so I doubt we'll see a dip that far. Assuming you want to buy this stock as a value play, the safest options would be to wait for confirmation that bullish activity is returning to the stock, or to slowly dollar cost average into the stock (the latter is what I'll be doing, with my first buy placed around $160.)
On the daily chart, the RSI hasn't made a new low yet with these recent falls, and neither has the MACD. These are some good signs - but nothing too concrete yet. We will need to see the MACD start to pull back up to make any concrete judgements. The daily 21 MA (not shown) has proven to be a decent trend indicator for BYD, and currently not only we are trading below it, but it has also crossed over the 100 and 200 MA already and turned bearish. I am hoping that the stock creeps back above these MAs sooner rather than later so that the potential bullish momentum in the stock does not dwindle.
In case of a further collapse in Chinese stocks, the markets as a whole (Yellen just warned of possibly interest rate rises), or in EVs, BYD's stock price could see some more rough times, and it may be picked up for even more of a bargain.
Conclusion
The EV market has been heated for a while, with a lot of new companies in the game. I think BYD proves itself to be a good contender for this market, and as long as they can implement their expansion strategies quickly and effectively, this stock has huge growth potential. Not only that, but it is a relatively safe bet in a sea of overleveraged startups who are potentially one black swan event away from bankruptcy. The technicals look a little ugly right now, and there's a decent possibility of further drops in stock price, but I still think it's a good pick for a long term portfolio and EV value play.