Short Sellers Target World’s Top EV Maker As Rivalry Intensifies

(Bloomberg) -- Bearish bets against Chinese electric vehicle maker BYD Co. have surged to the highest since September, reflecting worries that sales growth may slow as competition intensifies.

Short interest on the shares accounted for about 5.5% of the stock's free float in Hong Kong as of Jan. 1, according to data from IHS Markit. The put-to-call ratio based on total open interest has climbed in the past month, suggesting growing pessimism among options traders even though the company delivered more EVs than Tesla Inc. last quarter.

Read More: Tesla Falls Behind BYD in Quarterly EV Sales as Growth Slows

BYD is regarded as a bellwether of the Chinese EV market — the world's largest — and the positioning offers a snapshot of the mounting concerns about the sector's prospects. Headwinds are building as Beijing struggles to jumpstart growth and competition is heating up, with UOB Kay Hian predicting that the nation's EV sales growth will halve to 17% in 2024.

“There are concerns over BYD's growth momentum this year given 2023's high base effect and weak consumer demand amid China's challenging economic environment,” said Andy Wong, fund manager at LW Asset Management Advisors Ltd.

BYD's vehicle sales are expected to increase 24% this year to 3.7 million units, after rising over 60% in 2023, according to data compiled by Bloomberg. Over 150 new models are scheduled to be launched in China in 2024, of which 80% will be electric vehicles, according to HSBC Qianhai Securities Ltd.

Read More: BYD Growth Status In Doubt With $12 Billion Selloff: Tech Watch

The challenging outlook is weighing on BYD's shares, with the stock declining 16% since mid-November to underperform its smaller rival Li Auto Inc. which lost 12%. A global industry gauge dropped about 3% during the period. 

Analysts expect BYD to face growing competition from rivals including those that use the capabilities provided by smartphone titan Huawei Technologies Co.

While BYD has achieved its three million unit sales target for 2023, the key question now is whether it can continue to offer retail discounts to narrow the gap between its sell-in and sell-through rates, especially amid the growing competition from tech peers, Morgan Stanley analysts including Tim Hsiao wrote in a note. That said, the recent drop in lithium prices and resilient overseas demand may enable the company to offer more aggressive promotions in 2024, they added.

“Given the intensified local competition from other Chinese EV makers, especially multiple model launches from brands leveraging on Huawei, investors are getting conservative on the sustainable margin for BYD,” said Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. 

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