Warren Buffett-backed electric automaker hit by rising battery costs

BEIJING – Chinese electric car company BYD is feeling the brunt of rising battery material costs.

Backed by US billionaire Warren Buffett, the automaker announced Monday evening that net profits attributable to shareholders in the first quarter would be between 200 million yuan ($ 30.4 million) and 300 million yuan.

“Affected by the upstream commodity price fluctuation, the profit of the automotive business still needs to be improved,” BYD said in a statement, noting that seasonal factors “also have some impact” on vehicle sales. new energy tourism.

In a growing market for electric cars, the demand for batteries to run them is increasing. As a result, Goldman Sachs analysts said in a March 18 memo that the prices of major materials would rise, pushing battery prices up by around 18%.

“(BYD) mgmt. Also mentioned that they face pressure from soaring commodity prices, for example lithium carbonate, electrolyte and copper,” Citi analysts said in a note. , citing an appeal with BYD Chairman Wang Chuanfu on Tuesday.

The lower-than-expected first quarter forecast is only 3% to 5% of what analysts expect for the full year, Credit Suisse analysts said in a note Tuesday. They lowered their price target on BYD Hong Kong-listed shares to HK $ 280, from HK $ 310 previously.

But this new target still implies a gain of more than 60% for BYD from its Tuesday close of 170.40 Hong Kong dollars.

Credit Suisse analysts attributed the decline in earnings forecasts to seasonal weakness in car sales, lower government subsidies and higher prices for battery raw materials.

BYD reported net profit attributable to shareholders of 4.23 billion yuan for the whole of 2020. The revenue share of automobiles and related products rose to 53% last year, from 49% a year ago. year, while that of batteries remained the same at around 8%. The share of income outside Greater China climbed to 39% from 16% a year ago.

While new models of electric vehicles in a growing market have helped boost these profits, analysts at Nomura pointed out that the results are in the lower end of the estimated range as “rising raw material costs have affected short-term earnings growth “. Nomura maintained its BYD price target of HK $ 300.

– CNBC’s Michael Bloom contributed to this report.