BYD, Geely Earnings to Signal Direction for China EV Stocks

China EV Giants Brace for Q1 Reckoning Amid Price Wars

BYD Co. ($1211.HK, $002594.SZ) is expected to announce a first-quarter net profit increase of between 11% and 15% year-over-year, totaling 4.5 billion to 5.2 billion yuan ($620 million to $720 million), as the Shenzhen-based automaker navigates an increasingly brutal domestic electric vehicle market. This projection, based on average analyst estimates compiled by Bloomberg, underscores the formidable challenge facing even market leaders amid an industry-wide price war initiated by Tesla Inc. ($TSLA) in late 2022. The upcoming earnings reports from BYD and Geely Automobile Holdings Ltd. ($175.HK) are set to provide crucial insights into the competitive landscape and profitability pressures within China's electric vehicle sector.

Shares of BYD ($1211.HK) closed down 2.1% at HK$208.20 on Tuesday, while its Shenzhen-listed counterpart ($002594.SZ) shed 1.8% to 198.50 yuan, ahead of its scheduled earnings release on April 29. Geely Automobile Holdings Ltd. ($175.HK), another major player, saw its shares decline 3.5% to HK$8.30 in Hong Kong, reflecting broader market anxiety over profitability pressures across the sector as consumers grapple with economic uncertainties and escalating competition. This preemptive market reaction highlights the high stakes associated with these financial disclosures, which are expected to set the tone for the entire Chinese EV ecosystem.

Market Impact

The anticipated earnings releases are critical for China's electric vehicle sector, a market valued at over $1 trillion at its peak in 2021. The Hang Seng Tech Index, which includes several EV manufacturers, has seen a 15% decline year-to-date, contrasting with a 2.5% gain for the broader Hang Seng Index. Trading volumes for BYD ($1211.HK) have averaged 32 million shares daily over the past month, a 15% increase compared to the previous quarter, indicating heightened investor interest and speculative activity leading into earnings season.

The current market environment mirrors the intensified competition seen in 2023, where over 40 EV brands initiated price cuts, leading to a sector-wide gross margin compression of approximately 200 basis points. This aggressive pricing strategy has notably impacted smaller players, with several struggling to maintain market share. The average selling price of a new energy vehicle (NEV) in China fell by 6% in Q1 2024 compared to the previous year, according to data from the China Passenger Car Association (CPCA).

Cross-asset spillover effects are also evident, with battery manufacturers like Contemporary Amperex Technology Co. Ltd. ($300750.SZ), or CATL, experiencing volatility. CATL shares have fallen 8% year-to-date, as lower EV prices translate to increased pressure on battery cell costs. Furthermore, traditional automakers with significant EV ventures, such as SAIC Motor Corp. ($600104.SS), are also facing headwinds, with their shares down 10% in the last six months as they struggle to compete with pure-play EV specialists.

What Analysts Are Saying

Analysts are largely cautious on the near-term outlook for China's EV sector, despite robust volume growth. "UBS analysts project BYD's Q1 vehicle gross margin to compress by 200 basis points quarter-over-quarter to 16%, primarily due to aggressive discounting across its model lineup," noted Paul Gong, an analyst at UBS. He emphasized that while BYD's integrated supply chain provides a cost advantage, even the market leader is not immune to the severe pricing pressures.

Morgan Stanley analysts highlighted Geely's strategic focus on premium brands but expressed concerns over overall profitability. "Morgan Stanley noted that while Zeekr's deliveries grew 117% year-over-year in Q1, Geely's overall gross margin faces headwinds from intense competition in the mass-market segment, particularly for models like the Geometry series," stated Tim Hsiao, an analyst at Morgan Stanley. He added that the success of new models and the performance of Zeekr, which targets an IPO in the U.S., would be crucial for Geely's profitability trajectory.

However, some analysts maintain a more optimistic long-term view. "Citi analysts maintain a 'Buy' rating on BYD, citing its robust supply chain integration and expanding overseas market penetration, expecting international sales to contribute over 15% of total revenue by 2025," said Jeff Chung, an analyst at Citi. He argued that BYD's scale and continuous innovation in battery technology and smart features position it well to capture global market share beyond the domestic price war.

What to Watch

Investors should closely monitor BYD's Q1 earnings call on April 29 for management's guidance on full-year delivery targets and profitability outlooks. Any comments on the sustainability of current pricing strategies, particularly for its popular Dynasty and Ocean series, will be critical. The company's expansion into international markets, especially in Europe and Southeast Asia, will also be a key focus, with analysts looking for concrete figures on overseas revenue contribution.

Geely's Q1 earnings, expected in mid-May, will be closely watched for insights into the performance of its premium Zeekr brand and the impact of recent model launches like the Zeekr 007 sedan. The gross margin performance of Zeekr will be a significant indicator of Geely's ability to command higher prices in a competitive market. Furthermore, any updates regarding the potential U.S. IPO of Zeekr will be a major catalyst.

Government policy signals remain a critical factor. Investors should watch for potential new subsidies or purchase tax exemptions for NEVs, which could provide a much-needed boost to consumer demand. The current purchase tax exemption on NEVs is set to expire at the end of 2027, but any early signals of extension or modification could influence market sentiment.

Key technical levels for BYD ($1211.HK) include immediate support at HK$200 and resistance at HK$220. A sustained break above HK$220 could signal a recovery in investor confidence, while a fall below HK$200 might trigger further selling pressure. For Geely ($175.HK), support is observed at HK$8.00, with resistance at HK$9.00. A breach of the HK$8.00 level could indicate deeper concerns about its profitability prospects.