To The Moon

Overview: 

The broader markets have seen mixed performances with EV stocks under pressure, but BYD Co. $BYD Co., Ltd.(BYDDY)$  $Byd Company Limited(002594)$  stands out. Short-sellers are losing conviction on their bearish bets against BYD, suggesting that the company's shares may continue to outperform other Chinese EV stocks if upcoming results meet expectations.

Declining Short Interest: 

Short interest in BYD’s Hong Kong-listed shares has significantly decreased, dropping from a peak of 7.7% earlier this year to just 1.4% as of August 21. This is the lowest level of bearish bets since July 2023, indicating growing investor confidence.

Record Sales and Earnings Rebound: 

BYD set a new record, selling nearly one million electric and hybrid vehicles in the latest quarter. Despite fierce competition, this impressive sales performance has boosted expectations for an earnings rebound after two consecutive quarters of decline. The stakes are high for BYD, especially after better-than-expected results from competitors like Geely Automobile Holdings Ltd $GEELY AUTO(00175)$  and Xiaomi Corp$XIAOMI-W(01810)$  .

Margin Improvements and New Models: 

Analysts expect BYD’s margins to continue improving, driven by higher operating leverage. The launch of new models this quarter is anticipated to further enhance the company’s market share and earnings visibility. BYD’s stock has already gained more than 6% in Hong Kong this year, outperforming peers like Tesla Inc and Nio Inc$NIO Inc.(NIO)$  .

Resilience Amidst Industry Challenges: 

BYD’s strong revenue growth has made its stock more resilient to concerns over reduced demand and aggressive price cuts within the EV industry. The company’s fifth-generation plug-in hybrid drive system, introduced in May, has been a significant factor in its success. Additionally, BYD’s strategic price reductions across most models in China earlier this year have bolstered domestic deliveries, despite lower profitability from these sales.

Outlook and Insights: 

BYD’s ability to maintain higher plant utilization and leverage economies of scale has helped protect its overall margins, even as it faces challenges in its home market. With the expected launch of new models and continued margin improvement, BYD is well-positioned to strengthen its market share and earnings visibility in the coming quarters. Investors should consider the company’s resilience and growth potential, especially given its strong performance amidst a turbulent industry landscape.

Conclusion: 

In a nutshell, BYD’s strong sales, improved margins, and strategic moves in the competitive EV market make it a compelling investment opportunity. The declining short interest further underscores the growing confidence in the company’s ability to outperform its peers. While challenges remain, BYD’s robust fundamentals and market positioning suggest that it could be a strong contender for investors looking to capitalize on the EV industry’s growth.