In a recent report, investment firm Bernstein stated that 2024 “looks tough” for Tesla, particularly in terms of profitability. The firm believes that Tesla will struggle to achieve its target of growing deliveries by 20% in 2024 and 2025, which is well below the company’s goal of 50%. Furthermore, Bernstein predicts that Tesla’s margins and earnings per share for FY2024 will be significantly lower than consensus estimates due to ongoing cost cuts. The impact of last year’s price cuts is also expected to negatively affect Tesla’s gross margins. Based on these concerns, Bernstein has given Tesla an underperform rating and a price target of $150, implying a 36% downside.
An additional analysis from HSBC supports Bernstein’s concerns. They also gave Tesla a “reduce” rating and noted that while the company remains price-competitive, the demand for electric vehicles (EVs) appears to be plateauing. HSBC highlighted the slower EV adoption as an opportunity for other manufacturers to “ready themselves” and present tougher competition to Tesla. Furthermore, HSBC expressed uncertainty regarding the timing and commercialization of Tesla’s various projects, such as its supercomputer Dojo, full self-driving capabilities (FSD), and humanoid robot Optimus. They believe that the current valuation of Tesla does not accurately reflect the timeline for these innovations. HSBC’s price target of $146 implies a potential downside of 37.8%.
BYD’s Strengths and Growth Potential
On the other hand, Bernstein’s analysis of BYD paints a more positive picture. They highlight BYD’s advantageous cost structure, ability to revamp products quickly, and respond to market demand. Additionally, Bernstein acknowledges BYD’s viable export strategy, which generates higher margins and is likely to drive its future growth. Given these factors, Bernstein believes that BYD’s stock is currently undervalued, trading at 13.5 times its 2024 price-to-earnings ratio and 10.8 times for 2025. They have given BYD an outperform rating and a price target of 334 Hong Kong dollars ($43), representing a potential upside of 63%.
HSBC also remains constructive on BYD in 2024, emphasizing the company’s rising export numbers as the “next leg of growth.” The bank forecasts a volume and earnings growth of 28% and 30%, respectively, for 2024. They believe that BYD is in a position of strength in the competitive EV market, leading them to give it a buy rating and a price target of 356 Hong Kong dollars, implying a potential upside of 73.8%. FactSet data also shows that analysts covering BYD have given it a 94% buy rating with a 56.2% potential upside to the average price target.
Conclusion: A Changing Landscape
The analysis of Tesla and BYD highlights the changing dynamics in the EV market. While Tesla has long been hailed as the leader in the industry, concerns about profitability and competition from other manufacturers have emerged. Bernstein and HSBC both express doubts about Tesla’s ability to achieve its ambitious growth targets and question the timing of its various projects. As a result, they have lowered their ratings and price targets for Tesla.
On the other hand, BYD emerges as a strong contender in the global EV market. Its advantageous cost structure, innovative product offerings, and export strategy have positioned the company for future success. Bernstein and HSBC view BYD as undervalued and predict significant upside potential in the coming years.
Investors now face a crucial decision: stick with the long-time favorite Tesla or invest in the up-and-coming BYD. With the EV market evolving rapidly, it is essential to critically analyze the strengths and weaknesses of both companies before making an informed investment decision. While Tesla’s brand recognition and innovative reputation cannot be ignored, BYD’s growth potential and favorable market conditions make it an attractive option for investors looking to capitalize on the EV revolution.