In this news, we evaluated two electric vehicle stocks: BYD (BYDDY) (BYDDF) and Rivian Automotive (RIVN). A closer look suggests a bearish view for BYD and a neutral outlook for Rivian.
Overview of BYD
China-based BYD is recognized for producing vehicles such as the budget-friendly Atto 3 electric SUV, the Dolphin electric hatchback, and the Seal battery-electric mid-size sedan. Beyond vehicles, BYD is also active in diverse industries, including the production of rechargeable batteries and mobile handset components.
Overview of Rivian Automotive
On the other hand, Rivian is known for its R1S electric SUV, the R1T electric pickup truck, and its electric delivery van, the EDV. The two companies have distinct market positions and product offerings that contribute to their current stock performance.
BYD’s Stock Performance
American Depository Receipt (ADR) shares of BYD have surged 23% over the last three months, bringing their year-to-date return to 38% and their one-year gain to 25%. Importantly, each ADR share of BYD traded over the counter in the U.S. is worth two H shares traded on the Hong Kong Stock Exchange.
Rivian’s Struggles
In contrast, Rivian Automotive stock has plummeted 36% over the last three months, dragging its year-to-date plunge down to 55%. The stock is off 47% over the past year. This stark contrast raises questions for investors about whether Rivian presents a buy-the-dip opportunity.
BYD: Volatility and Market Ties
BYD is closely tied to the Chinese and Hong Kong stock markets, making it susceptible to significant volatility. Given the current dynamics, a bearish view seems appropriate.
To understand BYD’s business better, it’s essential to note that the company offers exposure to both battery-electric vehicles (BEVs) and plug-in hybrids. This diversification is crucial right now, as most growth in the clean-energy vehicle space is occurring in hybrids rather than BEVs.
Current Issues in the Chinese Market
China’s stock market has experienced substantial fluctuations recently. The latest news indicates that China’s central bank unveiled a US$70 billion financing facility to support institutional buying, which propelled the Hang Seng Index up 3% at the market close on October 10.
Despite this recovery, the index remains down 6.5% for the week ending October 10, following an earlier drop. Investors are hopeful for further stimulus from the People’s Bank of China over the weekend. Should the central bank fail to deliver, Chinese stocks, including BYD, could tumble further. Conversely, if more stimulus is introduced, they could rally, potentially driving BYD’s stock higher.
Cautious Approach on BYD Shares
Given the three-month stock run-up and ongoing volatility, I would recommend holding off on purchasing BYD shares right now.
Price Target for BYDDF Stock
BYD has a Strong Buy consensus rating based on four Buy, zero Hold, and zero Sell ratings assigned over the last three months. At $40.79, the average BYD stock price target implies an upside potential of 6.64%.
Rivian’s Challenges
Rivian faces distinct challenges separate from the broader stock market. Recently, the company missed its delivery targets due to a component shortage, leading to a production forecast reduction of up to 18%, resulting in a new range of 47,000 to 49,000 vehicles for the full year.
Temporary Issues Affecting Rivian
While some analysts, including those at Deutsche Bank, suggest the component shortage could impact Rivian’s deliveries into the first quarter of 2025, it’s important to view this as a temporary challenge that could present a buy-the-dip opportunity. However, I believe Rivian stock has not yet hit its bottom.
Rivian’s Business Model and Demand
Additionally, Rivian cannot rely on hybrid sales to navigate the current plateau in electric vehicle sales, as it does not sell any hybrids. Fortunately, Rivian’s low delivery numbers make this concern minimal in the short term. Notably, Rivian received 68,000 reservations for its R2 model the day after its announcement earlier this year, indicating strong demand for its vehicles despite the broader challenges.
Strategic Approach for Rivian
Rivian’s business strategy involves launching more expensive models first before transitioning to less costly models, mirroring Tesla’s successful approach. Given the promising demand for Rivian’s vehicles and the expected recovery, I recommend taking a wait-and-see approach with Rivian. This strategy allows investors to take advantage of any further declines before establishing or adding to their positions.
Price Target for RIVN Stock
Rivian Automotive has a Moderate Buy consensus rating based on four Buys, three Holds, and zero Sell ratings assigned over the last three months. At $17.33, the average Rivian Automotive stock price target implies an upside potential of 68.91%.
Conclusion
While BYD is the more established automaker, the recent run-up in its stock price, coupled with ongoing volatility in the Chinese stock market, makes its shares less appealing at this moment. I would prefer to wait for a drop in BYD stock or a significant pricing gap compared to Hong Kong shares before reassessing my position. On the other hand, Rivian Automotive, although riskier, has minimized its risk profile following its recent share price decline. The adoption of Tesla’s business model and the strong demand for Rivian’s vehicles could help the company navigate its temporary challenges. While investors may need to endure additional setbacks, these issues could ultimately render the stock more attractive in the long run.
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