BYD's global expansion, with annual deliveries expected to reach 6 million vehicles in two years, approaching Toyota and Volkswagen

BYD's overseas journey is creating new opportunities for the company. JP Morgan believes that in the next 1-2 years, BYD's global expansion and the growth opportunities of potential plug-in hybrid products will drive a revaluation of its stock price.

This week, Chinese electric vehicle giant BYD announced a $1 billion investment to build a factory in Turkey with an annual production capacity of 150,000 electric vehicles, expected to start production by the end of 2026. In addition to the Turkey factory, BYD's four overseas production bases or complete vehicle assembly lines (Thailand, Indonesia, Brazil, and Hungary) will also be completed by 2026 and gradually increase production capacity, with the Thailand factory set to start production in the first half of 2025.

Analysts at JP Morgan, including Lai Yizhe, pointed out in a report released on Tuesday that they are optimistic about BYD's expansion in markets such as Southeast Asia, Latin America, and the European Union, believing that overseas markets will not only provide stronger growth opportunities but also help the company maintain high profit margins. The bank has raised its target price for BYD's H shares by over 80% to HKD 475/CNY 440 in the next 12 months and revised its sales volume estimates upwards.

Analysts wrote in the report that they expect BYD's global delivery volume (including China) to reach 6 million units by 2026, with approximately 1.5 million units delivered in overseas markets, and the rest in the domestic market. This means that the company's share in the global light vehicle market (including fuel vehicles) will increase from 3% in 2023 to 7% in 2026, while its share in the new energy vehicle market (excluding plug-in hybrids) will remain around 22% during the same period.

JP Morgan believes that BYD's new energy vehicle products excel in terms of cost and configuration, and can compete with most similar models in the mass market overseas. Analysts believe that there are further business opportunities for BYD in some overseas markets. Although the EU will raise tariffs, BYD will focus on competition overseas through configuration or products rather than price.

Regarding BYD's plug-in hybrid products, analysts noted:

We expect strong demand for plug-in hybrid vehicles to continue until 2030, with our forecast that by 2030, plug-in hybrids and range-extended electric vehicles will account for 60% of China's total demand for new energy vehicles, nearly doubling from 31% in 2023. As a leading plug-in hybrid vehicle company, BYD will benefit from this trend, and we expect the company's annual compound sales growth rate for the fiscal years 2023-2026 to be as high as 26%.

Regarding the company's future expansion path, analysts pointed out that although most of the bases are currently low, the prospects in Southeast Asia, Latin America, and the European Union are promising. The domestic markets in Brazil and Indonesia also have huge potential (230,000 units and 100,000 units respectively).

JP Morgan believes that Thailand and Hungary, which already have strong supply networks, will become BYD's main production centers, providing not only stronger growth opportunities in overseas markets but also maintaining excellent profit margins In the short term, BYD's sales volume in the second quarter of this year was 987,000 units, with a month-on-month/year-on-year growth rate of 58%/40%. JP Morgan expects the quarterly net profit to exceed RMB 8-8.4 billion. Due to the large number of orders received for the newly launched Qin L and Dolphin 06, coupled with the new models in the second half of 2024 adopting the DMI 5.0 platform, JP Morgan has raised its sales forecast for the fiscal year 2024 to 4 million units, with expectations of 5 million units/6 million units in 2025/2026.

Based on the above analysis, JP Morgan has raised BYD's sales and profit forecasts for the fiscal years 2024-2026 by 8-32% and 10-16% respectively, setting a target price for the next 12 months at HKD 475/RMB 440