Bernstein Analysts Question Tesla's Valuation In Comparison To Warren Buffett-Backed BYD

Bernstein analysts have debated the $649 billion gap in market capitalization between Tesla Inc. TSLA and Chinese EV giant BYD Co Ltd BYDDF.

What Happened: The analysts argue that BYD is a wiser investment despite Tesla’s 120% share price surge in 2023. They are struggling to justify the valuation gap, considering the companies’ similar revenues, EV sales, and profits, Forbes reported.

Despite a year-to-date decline in earnings, Tesla’s market cap sits at around $730 billion. In contrast, BYD, whose profits more than doubled this year, is valued at $84 billion.

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Bernstein analysts foresee a gloomy future for Tesla with a projected $150 price target for its shares, which indicates a potential 40% slump. In contrast, they set a $46 price target for BYD, predicting a 60% surge. The analysts expect the valuations of Tesla and BYD to converge rather than diverge in the future. Sacconaghi and Lee mentioned in their report, “In the long term, valuations matter, and, based on fundamentals, valuations between Tesla and BYD are more likely to converge than diverge.”

They questioned why the companies, seemingly heading in “opposite directions” of growth, continue to trade at starkly different levels.

Why It Matters: Tesla and BYD, despite having similar financial trajectories, have seen a stark contrast in market valuations. This raises questions about whether the market is overvaluing Tesla’s potential or undervaluing BYD’s achievements. Bernstein’s analysis highlights the potential for a market correction, which could see a convergence of valuations. 

Warren Buffett’s Berkshire Hathaway holds an 8% stake in BYD, which is listed on the Hong Kong Stock Exchange.

Meanwhile, Tesla’s global EV deliveries for the third quarter of 2023 only slightly exceeded those of BYD.

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