Should you buy the dip in BYD stock? Morgan Stanley analyst weighs in

Investing.com -- Morgan Stanley analysts remain optimistic about Chinese electric vehicle maker BYD stock despite a significant pullback, highlighting potential for recovery as inventory issues resolve and global expansion continues.

The investment bank’s recent analysis comes after BYD shares dropped 32% from their May highs, compared to a 10% gain in Hong Kong’s Hang Seng Index during the same period. The decline followed earnings misses and guidance cuts that dampened investor sentiment.

However, Morgan Stanley believes several factors could drive a turnaround for the world’s largest EV manufacturer by sales volume:

BYD stock has experienced a sharp 30% selloff since its peak in May, but Morgan Stanley analysts believe inventory challenges will soon be resolved. They note that heavily shorted positions in the stock could create "a self-reinforcing rebound on any marginal improvement in sales and global share gains."

The bank also expects the impact of China’s anti-involution policies to ease, potentially removing another headwind for the company.

Morgan Stanley points to BYD’s impressive international expansion as a key strength. The company sold approximately 700,000 units overseas in the first nine months of 2025, putting it on track to meet its full-year target of 0.9-1 million units. Looking ahead to 2026, analysts project BYD will sell between 1.6-1.8 million vehicles outside China, representing year-over-year growth of 68-89%.

While some investors remain concerned about potential market share losses in 2026 due to increasing competition in the mass-market segment, Morgan Stanley forecasts BYD will gain 1.2 percentage points of market share outside China and the US, reaching 3.3% in those markets.

The bank acknowledges that BYD’s overseas growth strategy faces challenges, noting that "no single market has the capacity to provide BYD with an extra 700-800k volume sales gain within a year."

Instead, the company’s international expansion will depend on "general volume growth across all its strategic markets," where Morgan Stanley believes BYD "has been making solid progress."

In recent developments, BYD reported a 0.9% drop in vehicle production for July, its first decline in over 16 months, though sales increased by 0.6%. The company also announced plans to begin production at its new plant in Hungary by the end of 2025 and is offering discounts on certain Qin Plus sedan models until the end of the year.

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