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Potential high point for BYD... and global lithium

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2023-11-06

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Last week marked a potential high point for BYD, the world's largest producer of electrified vehicles, both battery and plug-in EVs, which may also signify a peak for the global EV and lithium industries. On the positive side, there was confirmation of record quarterly profits for the three months ending in September, record sales in China in October (especially for battery-powered vehicles), record exports, and 10-month sales. Battery sales also hit a new record, which is BYD's second most important business segment.

However, there was also some good news in the form of forecasts of lower metal prices from major lithium producers, including Albemarle, which lowered its 2023 earnings and sales estimates due to oversupply and weak pricing. Albemarle and other producers are also expressing concerns about weakening demand, while US and European carmakers worry that they may have missed the EV boom.

Early data on October's sales of New Energy vehicles in China suggest that the final number could exceed a record 890,000, with BYD accounting for a record 301,000 of those sales, or just over a third. Extensive subsidies are driving these record sales, and news of price cuts on top of these subsidies should be a cause for concern.

On the downside, there was another round of BYD share sales reported by Warren Buffett's Berkshire Hathaway company, BYD's largest shareholder in Hong Kong-listed shares. While the sales were small-scale, they continued a trend that started over a year ago. Month-to-month growth in China's NEV sales is slowing as local consumers become more cautious, with exports partially offsetting the slowdown. Reports of price cuts have been on the rise, starting with Tesla in January and February.

More worrisome was the news of price discounting by BYD on some of its popular vehicles that are selling well. Nio, a smaller Chinese rival to BYD, also announced plans to cut employment by 10%, marking the largest such cut in the sector.

BYD's price cuts started last Wednesday and Thursday on at least three of its most popular models, with the offers set to last until November 30, indicating that the Chinese market may be experiencing oversupply in certain segments. While BYD had a record month in October with sales exceeding 301,000, its US rival Tesla saw a 2.4% drop in deliveries last month compared to September but a less than 1% increase compared to October 2022.

BYD's October sales of 301,833 NEVs were up 38.42% from the same month last year and up 5% from September. Sales of BEVs in October totaled 165,505 units, up 60.4% from October 2022 and up 9.5% from September. October's figure was more than twice that of Tesla.

In total, BYD sold 2,371,350 passenger NEVs in the January-October period, a 70.2% year-on-year increase. BYD's sales of passenger PHEVs in October were 135,590 units, an 18.6% increase from the same month last year and a 0.09% decrease from September. The company sold 1,213,918 passenger BEVs in January-October, up 77% year-on-year, and also sold 1,157,432 passenger PHEVs in the same period, up 63.6% year-on-year.

BYD's overseas NEV sales in January-October totaled 176,041 units, a 919.64% year-on-year increase.

Earlier in the week, BYD reported that net earnings for the September quarter increased by more than 82% to a record RMB 10.41 billion ($US1.42 billion) in the third quarter. Earlier in the month, BYD released an earnings update forecasting a net profit ranging from RMB 9.55 billion to RMB 11.55 billion in the third quarter.

In late October, Berkshire Hathaway sold another 820,500 Hong Kong-listed BYD shares for HK$201.73 million ($US25.78 million), reducing its holdings in BYD's issued H-shares from 8.05% to 7.98%.

BYD's Hong Kong-listed shares have declined by just 8% year-to-date but have risen approximately 0.3% in the past month.

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