BYD’s Share Price Has More Than Doubled in the Past Few Months. Here’s Why

Want to know about why BYD Company Limited (SEHK: 1211) stock has surged lately? Here’s a quick breakdown. – Car BYD investing China

BYD Company Limited (SEHK: 1211), a conglomerate with interests in various businesses such as automobiles, batteries, and more, has seen its share price surge more than 100% in the last few months.

In this article, I’ll try to understand what might have been the drivers for this share price appreciation.

Why stock prices move

Though many reasons might cause a company’s stock price to move, it is generally driven by a change in either business performance or investor sentiment.

The former is related to how a business performs in a given period, looking at metrics like growth, margins, production, and others.

The latter is driven more by investors’ overall mood, which is described by emotional pairs such as greed and fear, optimism and pessimism, or bull and bear.

In the case of BYD, I believe both factors – especially the change in sentiment – contributed to its recent stock performance.

Market sentiment

The recent change in sentiment towards BYD’s stock is a result of two major forces; the recent surge in Tesla Inc’s (NASDAQ: TSLA) stock price (up close to 300%) from its low in March 2020 as well as the overall positive sentiment for China stocks.

The former has a positive impact on BYD since both companies operate in the same industry of making electric cars.

As Tesla’s stock price rose, market participants scouted for cheaper companies (like BYD) to invest in, which caused BYD’s share price to rise as well.

Moreover, BYD’s Hong Kong-listed stock also benefitted from the spill-over optimism from mainland China thanks to its dual-listing on the Shanghai Stock Exchange and Hong Kong Stock Exchange.

Business update

Despite the generally weak economic activity in China, BYD launched its most luxurious car to-date -the Han series in May this year (see below).

BYD new car Han series

Source: BYD’s Website

The latest premium all-electric executive sedan comes with BYD’s cutting-edge “Blade Battery” technology that offers a single-charge range of 605 kilometres. It also boasts 3.9 seconds for a 0-100km/h acceleration.

This latest model, which will be available for sale in China and overseas, is BYD’s answer to customers looking for a luxury electric car.

If successful, this model could change consumers’ perception of BYD – which traditionally competes on the mid- to low-end of the automobile industry – and also open up new opportunities for the company, such as becoming a global player.

Though it’s still early days, the Han series illustrates how BYD is capable of evolving and adapting to competitive pressures, and coming out stronger over time.

Foolish conclusion

In sum, BYD’s stock has risen thanks to positive sentiment, as well as its positive business development.

However, going forward, investors should exercise caution since the stock has become too “hot”, with little consideration given to the ongoing disruption amid the Covid-19 outbreak.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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