Great day for our portfolio today as we are outperforming the $SPX500 by about half a percentage point mainly because of the recovery of $PE and $GME continuing to grow at an accelerated rate.
BYD STOCK ANALYSIS: Warren Buffett's TESLA of China 🚗
BYD $01211.HK is the world's largest electric vehicle (EV) company by sales. They have the largest fleet of electric buses in the world(including making electric double decker buses for the city of London), largest fleet of electric taxis, they have factories in numerous countries including the US, are the largest rechargeable battery company in the world and are now working on monorails. 8% of BYD is also owned by Warren Buffett' s Berkshire Hathaway $BRK.B after Charlie Munger started buying the company in 2008. Warren Buffett has since made over 500% from this investment.
The company was founded in 1995 by Wang Chuanfu who is considered as the most innovative person in EV. In the early days, BYD made batteries for phones. Most phones before smartphones actually had a battery made by BYD. Then, they moved into making larger batteries for solar plants and also solar panels before making batteries for EV and making EV themselves. This makes sense since the most expensive part of an Electric Vehicle is the battery. An EV is just a battery with wheels.
34% of revenues come from electronics. They make ceramics, 3D glass, semiconductors most of which are for the smartphone market. Actually, they spin-off part of the electronics business to form BYD Electronics $00285.HK . This is the most profitable part of the business having a profit margin of 7%.
59% of revenues come from electric vehicles. They have a profit margin of around 4% which is normal in the car industry except for BMW $BMW.DE which has a profit margin of 8%. Their closest competitor, Tesla $TSLA (which is a small company in California) is still not profitable. They don't only make cars but also trucks, buses, forklift. They also make non-EV cars and plug-in hybrids. They are now starting to sell their products outside China. Given that they have factory in the US, they are not affected by the trade war and there are US cities already buying their electric garbage trucks.
7% of revenues come from batteries and solar panels.
Why is BYD so successful? If you look at their competitors Tesla and Nio $NIO , they are not profitable yet. The EV market in China is much bigger than in other countries. China doesn't have oil $OIL and they want to have as many EV as possible and as soon as possible. They are financing companies such as BYD through subsidies. The problem in China is that the GDP per capita is only $8000 and the average citizen cannot afford a $35 k model 3 Tesla. That's why BYD is dominating the market. They can make cheaper cars. The cars are not as good as those made by Tesla. They are not focusing on autonomous vehicles that much but the EV are great for the Chinese market.
The revenues and net income of BYD has been increasing over the last years. The only problem is that about half of their profits comes from subsidies. If the Chinese government decides to cut subsidies, it won't be good. They also have a positive cash flow but a high capital expenditure, which is not unusual in the car industry.
I think right now, the company is a little expensive even if it will have a great future. Right now, car sales in China and all around the world is going down. Delinquency rates on auto loans are also going up. This is not a right time to invest in an automobile company. There is most probably a recession coming in the next two years. It is better to wait. Warren Buffett invested in BYD in the middle of the global recession.
Tesla is certainly making the most innovative cars but comparing Tesla with BYD would be an insult to BYD.
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