The growth rate for NIO is 34% for 2022. The growth rate for BYD is 184% but the total EV sold is still smaller than Tesla.
There is a fear that Tesla will lose out in its competition with BYD. However, most analysts expect the EV market to grow rapidly over the next 5 years. Tesla will be able to sell all the EVs that it produces in this expanding market.
Why did Tesla miss its growth target of 50%? The actual growth of 40% indicate a shortfall of 100,000 vehicles.
At the end of 2022, Tesla had 70,000 vehicles that were produced, but were not delivered. The bearish analysts said that it is due to a drop in demand for Tesla.
Tesla could have suffered from this drop in demand. However, there are two other reasons for the lower deliveries:
a) Many customers in America wanted to delay the completion of the purchase to 2023 to enjoy the tax incentive that will come into force.
Tesla introduced a discount of $7,500 to encourage these customers to complete the purchase in 2022, but it came too late to make any impact. Whatever sales lost in 2022 will probably be recovered in 2023.
b) Tesla found it difficult to arrange the logistics to export the vehicles from China to other countries. This was caused by the covid outbreak in China towards the end of the year, which caused a shortage of workers as many reported sick. This problem should probably be resolved in the 2023.
There is one negative point for Tesla. BYD appeared to be able to sell their vehicles in China (as can be seen from their record sales in December). NIO also reported record sales in that month.
So, it is likely that the lower demand is felt by Tesla in China, in spite of the problems in logistics.
To offset this challenge, Tesla had reduced the prices of its vehicles. This should make Tesla more competitive against the other manufacturers.
Tesla enjoys a large profit margin. Even if the prices are reduced, Tesla will still be able to sell their vehicles at a profit.
NIO operates at a loss in 2022. It is expected to make a loss in 2023 as well. NIO has a large debt of 82% of equity. The high interest rate will put pressure on NIO.
BYD is profitable, but has a PE ratio of 52 times. It is imported to improve its profits in 2023 and reduce its PE ration to 33 times. It debt is 23% of equity (which is low).
Tesla has a PE ratio of 39.6 times. The PE ratio is expected to fall to 24.3 in 2023. Its debt is 14% of equity. It has a cash hoard 0f $21.2 billion compared to debt of $5.9 billion.
At the current stock price, both Tesla and BYD are attractive for investment. I prefer Tesla because the stock price can increase by 50% from current level to put the fundamentals at a similar level to BYD.
Tan Kin Lian
https://fisca.sg/ArticleDisplay.aspx?ID=1283
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