Controversy around BYD persists, but overseas expansion and technology upgrades support the long-term bullish case

Overview

This report is Morgan Stanley's event commentary after BYD's 4Q results. The report believes the debate will continue: bulls are focused on rising overseas sales, the new-model cycle, the second-generation Blade battery, and ultra-fast charging infrastructure; bears are focused on domestic sales and earnings volatility, price competition, rising costs, and the trend toward R&D capitalization. The overall conclusion remains constructive, with Overweight maintained.

Core views

The core view is that BYD is still affected in the near term by intense domestic competition and capacity constraints during the battery transition period, but the next 3-6 months of the new-model cycle could drive a sales recovery; overseas markets are seeing stronger store traffic and EV interest due to oil price shocks, and together with local production improvements in ASEAN, Latin America, and Europe, these markets could become an important source of growth that smooths domestic volatility. The ultra-fast charging network will take longer to translate into a relative economic moat versus peers.

Analysis framework

The report starts from post-earnings market attention points and makes its judgment based on management communication, product and battery technology iterations, overseas sales targets, capital expenditure trends, and the valuation framework. Valuation uses a scenario-weighted approach that incorporates bullish, base, and bearish cases.

Methodology notes

• Valuation methodsblended_scenario_methodology

  A blended valuation approach with 25% bullish, 50% base, and 25% bearish scenarios

  The bullish case uses SOTP and implicitly assumes a 30x 2026 bullish P/E; the base case uses DCF with a 14.3% WACC and 3.0% long-term growth; the bearish case uses a 12x 2026 P/E, reflecting weaker auto sales at home and abroad and more severe price cuts.

• rating_definitionMorgan Stanley Overweight

  Relative rating

  Overweight means that over the next 12-18 months, the stock's total return is expected to exceed the average total return of the analyst's coverage universe on a risk-adjusted basis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD Company Limited (1211.HK)

  Core coverage name

  Strengths

  The new-model cycle, second-generation Blade battery, ultra-fast charging, overseas expansion, and potential capex decline together support long-term competitiveness.

  Weaknesses

  Competition in the domestic mass market is intense, there are short-term capacity constraints during the battery transition, and earnings and sales may still be volatile.

  Comparison

  The report believes that if ultra-fast charging infrastructure is gradually rolled out, it could expand BYD's economic moat relative to other EV peers, but this will take more time.

  Risks

  Overseas expansion could be affected by rising protectionism, domestic and overseas sales could miss expectations, price cuts could be more severe, costs could rise, or disputes over R&D capitalization could emerge.

• BYD Company Limited (002594.SZ)

  A-share listed security of the same company

  Strengths

  Shares the same underlying operating fundamentals and product-cycle drivers as the H-share listing.

  Weaknesses

  Valuation and liquidity may be affected by A-share market risk appetite.

  Comparison

  The coverage table in the report shows 002594.SZ also as an Overweight rating, with a price of RMB 105.30.

  Risks

  The same operating risks as the H-share, plus local market valuation volatility.

Key data

• Stock ratingOverweightThe report maintains a positive relative rating on BYD Company Limited (1211.HK).
• Industry viewIn-LineThe view on the China autos and shared mobility industry is In-Line.
• Current priceHK$106.50The table shows the price of 1211.HK on 2026-03-27.
• 2026 overseas sales target1.5mn+ unitsManagement is confident that overseas sales will exceed 1.5 million units in 2026.
• Long-term overseas sales mix potential~50%Management believes overseas sales could reach around 50% of total sales in the long run, versus 23% in 2025.
• Capital expenditure trendabout RMB 100 billion/yearManagement expects capex to gradually decline from RMB 157 billion in 2025 and stabilize.
• Second-generation Blade battery overseas rolloutstarting 2H26BYD plans to equip more overseas models with the second-generation Blade battery starting in the second half of 2026.
• Overseas ultra-fast charging buildoutstarting in 2027The company plans to start building ultra-fast charging stations overseas in 2027 to shorten charging times.

Impact & implications

For investors, the report suggests that BYD's key contradiction has shifted from simple domestic price competition to whether technological differentiation and overseas volume growth can offset domestic volatility. If order momentum, the new-model cycle, and overseas localization materialize, the Overweight case will strengthen; if protectionism, capacity transitions, price wars, or weaker sales intensify, earnings and valuation will come under pressure.

Risks

• Overseas expansion may fall short of expectations amid rising protectionism.
• Auto sales in China and overseas may be weaker than expected.
• Intensifying mass-market competition could lead to more severe price cuts.
• Short-term capacity constraints may persist during the transition from first- to second-generation batteries.
• Rising costs, R&D trends, and capitalization treatment may affect earnings quality.

What to watch

• Whether domestic order momentum improves after the technology upgrades.
• Whether the new-model cycle over the next 3-6 months can drive a sales recovery.
• Whether the May event helps BYD regain its smart-driving narrative.
• Whether overseas sales exceed 1.5 million units in 2026.
• Progress in fitting overseas models with the second-generation Blade battery in the second half of 2026.
• Progress on overseas ultra-fast charging station construction in 2027.
• Whether capex declines as management expects and stabilizes at around RMB 100 billion per year.