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Bernstein has identified BYD and Xiaomi as two of its preferred Chinese electric vehicle stocks, maintaining Outperform ratings on both companies despite cutting their price targets amid softer domestic demand.
The investment firm remains selective on the China EV market, reflecting concerns over near-term vehicle demand, sales volumes and earnings. While analysts lowered forecasts for both companies, Bernstein believes BYD and Xiaomi still offer attractive opportunities based on their growth prospects and competitive positions.
BYD remains Bernstein’s top Outperform pick in China’s EV sector. The firm reduced its price target after lowering sales volume and earnings estimates, largely because of weaker industry demand in China. However, several factors continue to support its positive outlook.
BYD’s domestic market share is showing signs of stabilization, while its international expansion continues to accelerate. Bernstein also sees additional upside potential from the automaker’s external battery business, strengthening the long-term investment case.
The Chinese EV giant reported total vehicle sales of 403,472 units in June, representing a 5.5% increase from a year earlier and marking its second consecutive month of year-over-year sales growth.
Bernstein also maintained an Outperform rating on Xiaomi, although it lowered its price target. The revision reflects weaker smartphone shipment and gross margin forecasts amid rising memory costs, alongside reduced EV expectations following softer momentum for Xiaomi’s YU7.
Near-term challenges remain, including memory pricing pressure on smartphones and reduced subsidies affecting Xiaomi’s IoT and EV businesses. Still, Bernstein sees the stock’s valuation as compelling.
Xiaomi trades at approximately 16 times estimated 2027 earnings, according to Bloomberg data. That compares with its historical average of roughly 25 times one-year forward earnings and a negative-one-standard-deviation valuation of around 17 times.
Bernstein believes Xiaomi’s discounted valuation provides an attractive 12-month risk-reward opportunity, keeping the company alongside BYD among its favored China EV stocks despite broader industry headwinds.
