After conducting a comprehensive investigation of BYD's overseas stores, Morgan Stanley has drawn the following conclusions.

Since last year, BYD has accelerated its pace of going global. According to statistics from China Securities Journal, as of the end of May, BYD's new energy vehicle exports have exceeded 10,000 units for 7 consecutive months.

In the past few weeks, the global automotive team at JPMorgan Chase conducted a comprehensive survey of BYD's major overseas stores and believes that BYD's domestic new energy vehicle business and overseas expansion will bring potential upside, and they remain optimistic about BYD.

JPMorgan Chase analysts Lai Yizhe and Shen Jiajie stated in their research report released last week that BYD will continue to dominate the plug-in hybrid vehicle market, and the growth in Southeast Asia and Europe will contribute to further export growth. They expect the profit margin to improve in the second half of the year, with an estimated gross profit margin of 20% for the full year.

JPMorgan Chase has raised its sales forecast for BYD in 2023 from the previous 2.6 million units to 2.8 million units, and has raised its target prices for its Hong Kong and A shares to HKD 300 and CNY 280, respectively, with increases of about 10%, maintaining "overweight" and "neutral" ratings, respectively.

Catalysts: plug-in hybrid, profit margin, export

For BYD, JPMorgan Chase believes that investors should focus on the following three points:

Development in the plug-in hybrid vehicle sector: In the first 5 months of this year/2022, plug-in hybrid vehicles accounted for 28%/23% of the total new energy passenger vehicle market, higher than 18% in 2021. We believe that plug-in hybrid vehicles will maintain steady growth in the coming years, and BYD may still maintain its dominant position (without significant competition from foreign brands, only partial competition from Chinese peers such as Great Wall Motors and Geely). We expect BYD's plug-in hybrid vehicle sales to account for 69% of the market share this year, higher than 64% in 2022.

Improvement in profit margin expected in the second half of 2023: In the second half of 2023, we expect BYD's profit margin to further improve due to product structure optimization and increased sales contribution from higher-profit models such as Tang and Han. We currently expect BYD's overall gross profit margin to increase from 17% in 2022 to around 20% this year.

Exports are another driving force for long-term growth and may serve as a downside protection for profitability due to intense competition in the domestic market. BYD's exports in the first 5 months of this year reached 64,000 units, accounting for 14% of China's total exports of new energy passenger vehicles (higher than 8% in 2022). We believe that initially, BYD should be able to grow faster/stronger in the Southeast Asian market, as there are not many global competitors in this region that have moderately priced products and attractive technological features (such as ADAS). After Southeast Asia, we believe that Europe is another growth area, especially in the low-priced product segment, while the main challenge for BYD in Japan is to increase brand awareness.

Summary of overseas store research by JPMorgan Chase Morgan Stanley visited BYD's major overseas stores, including those in Japan, Thailand, France, Germany, as well as Singapore and Hong Kong, China.

In Europe, Morgan Stanley conducted research on BYD's dealer stores in Paris and Frankfurt, discussing the launch of BYD products in France and the promotion of an independent distribution network throughout the region.

Morgan Stanley stated that the product lineup is highly competitive, and the pricing of the BYD Dolphin will be lower than that of the Atto 3, making it significantly competitive in a price range lower than the Volkswagen ID.3 and Tesla Model 3.

In the medium term, Morgan Stanley expects that approximately 10% of the European market will be occupied by Tesla, BYD, and other Asian automakers.

In the Japanese market, BYD only has one model available for sale, the Atto3 (Yuan Plus), priced at 4.4 million yen (approximately RMB 220,000), with only one trim level and limited options.

BYD ships 200 vehicles to Japan every month, with delivery completed in just one month, while most domestically produced Japanese models and imported models from competitors require a waiting time of 6-12 months.

Thailand is one of the most important destinations for BYD's overseas expansion, with 32 showrooms. Morgan Stanley visited BYD's store located in Rama-3, Bangkok, which offers two versions of the Atto3 - the standard range of 410 kilometers (priced at 1.0999 million Thai baht) and the long-range of 480 kilometers (priced at 1.1999 million Thai baht), with the latter having better market conditions.