Citigroup supports BYD: Inventory concerns may be overstated, the company's fundamentals remain strong

Recently, BYD has sparked a price war, raising concerns in the market about its high inventory levels.

According to the Chasing Wind Trading Desk, Citigroup analyst Jeff Chung and his team stated in a report released on June 6 that BYD's domestic inventory at the end of May stabilized at 609,000 units (approximately 2.12 months of sales), and it is expected to decrease to 1.26 months by the end of 2025, which can support its annual sales target of 5.5 million units.

In the report, Citigroup maintained a "Buy" rating on BYD, setting a target price as high as HKD 727, which still has about 80% upside potential compared to its current stock price.

Inventory levels have stabilized, far below market panic expectations

The research report shows that as of the end of May 2025, BYD's inventory in China has stabilized at 609,000 units (approximately 2.12 months of sales), based on an estimated monthly domestic sales volume of 2.87 million units.

This inventory level is far below the 900,000 to 1.2 million units claimed by some market reports, indicating that the market's concerns about BYD's inventory issues may be exaggerated.

Additionally, the report pointed out that the accurate inventory level for BYD dealers was 450,000 units at the end of December 2024 and 603,000 units at the end of April 2025, which is relatively controllable and shows a significant difference from the widely circulated figure of over 1 million units. This cognitive discrepancy may be one of the key factors leading to BYD's stock price performance falling short of expectations.

Strong sales expectations for the second half of the year, in line with historical seasonal patterns

The report further analyzes that to achieve the annual sales target of 5.5 million units while avoiding excess inventory at the end of the year, BYD needs to achieve quarter-on-quarter growth in domestic retail sales of 25%, 36.4%, and 34.5% in the second, third, and fourth quarters of 2025, respectively, with an annual domestic retail volume reaching 4.26 million units.

This means that BYD's domestic retail volume in the second quarter needs to reach 304,000 units (approximately 76,000 units per week). Recent data shows that weekly order data has rebounded to 80,000 units in the past two weeks, indicating signs of demand recovery.

Furthermore, Citigroup believes that the assumption of a year-on-year growth of 77.7% and 54.2% in domestic retail and wholesale in the second half of the year is not aggressive, as historical data supports this judgment: over the past five years, the year-on-year growth rate of retail sales of new energy vehicles in China in the second half of the year has fluctuated between 49% and 175%.

Exports and overseas expansion become new growth points, operational leverage expected to improve

The Citigroup report also emphasized the importance of BYD's export strategy, expecting that in the second, third, and fourth quarters of 2025, export volumes will increase by 24.9%, 4.9%, and 0% quarter-on-quarter, with an annual export volume reaching 1 million units.

It is worth noting that the export seasonality in the second half of 2025 will differ from that of 2024, primarily due to the gradual ramp-up of overseas factory capacity This export strategy is of great significance for BYD to balance domestic inventory pressure and expand its global market share. As one of the manufacturers with the most complete layout in the global new energy vehicle industry chain, BYD has the capability to stand out in international competition through its vertical integration advantages.

Citigroup expects that with the seasonal increase in sales, BYD will achieve continuous improvement in operational leverage.

According to the forecasting model, if BYD can execute the above sales plan, its inventory level will gradually decrease from 2.12 months in May to 2.03/1.85/1.56 months in June-August 2025, and further drop to 1.26 months by the end of December 2025.

This trend of inventory health will lay the foundation for BYD's 43% compound annual growth rate in net profit from 2025 to 2027, supporting Citigroup's logic of giving BYD a 0.8 times expected PEG valuation for 2025, equivalent to a corresponding expected price-to-earnings ratio of 34 times/22 times for 2025/26