What is BYD?
BYD stands for “Build Your Dreams”. It is a Chinese manufacturer of electric and hybrid vehicles with sales in Asia, Latin America and Europe. It was founded by Wang Chuanfu in 1995 in Shenzhen, China where it is headquartered. BYD started as a battery-making company but transitioned into the electric vehicle market after the acquisition of Xi’an Qinchuan Automobile in 2003. It debuted its first model, the BYD F3 in 2005. In 2022, BYD took over Tesla as the world’s largest EV maker after selling almost 2 million vehicles. The company had its IPO in 2002, and it is mostly traded in the Hong Kong Stock Exchange. Its shares are available in the U.S. OTC market under the ticker BYDDY.
Despite their relatively low price, BYD cars stand out for their high-end design, range, and efficiency. For example, Detroit engineers tested the BYD hatchback Seagull which sells in China for $12,000, and were “impressed by the Seagull’s perceived quality and immense value”. According to PBS, BYD could be a “Nightmare for the US Auto Industry”. The company’s focus on well-built vehicles under lean manufacturing strategy caught the attention of Warren Buffet who invested $230 million into BYD back in 2008. His investment has generated great returns since and he still has a current position of almost $5 Billion under Berkshire Hathaway’s portfolio or 5% of its market capitalization.
Financial Results, Key Metrics and Analyst Recommendations
BYD’s financial report for Q2/2024 showed that revenue expanded to $25billion – an increase of 25% if compared to Q2/2023. Meanwhile, net income increased 33% to $1.3 billion and operating income went up a staggering 73%. In terms of valuation, BYD’s P/E ratio of 21.8 compares favorably to Tesla’s 59.3. Similarly, BYD’s EV/EBITDA is 7.5 to Tesla’s 53.9. The company has shown substantial progress in deleveraging its balance sheet in the past five years as Debt/Equity Ratio is currently at 0.25 compared to 0.81 in 2020 and 1.22 in 2019. Its high inventory turnover of 5.12, compared to 5.42 of Tesla, 8.91 of Ford Motor Company, 8.18 of GM and 7.26 of Toyota, showcases its efficient use of working capital. As of September 2024, the manufacturer has a market cap of $97 billion compared to Tesla’s $673 billion. Lastly, as seen in the chart shown below, BYD has multiple buy and outperform recommendations from investment banking sector analysts.
Investment Thesis
There are three components to our investment thesis. First, the market seems to not be pricing in the potential growth of the company as it likely captures the growing EV market particularly in the emerging markets, Europe and potentially in the U.S. The EV industry is expected to increase its sales 32% annually according to Goldman Sachs Research and reach half of global sales by 2035, up from its current 18% market share. We believe that BYD is well positioned to participate in this growth. Second, we believe that the vertically integrated business model – with BYD’s own battery manufacturing and raw materials sourcing – is particularly robust and not yet reflected in BYD’s current price. Finally, BYD’s global exposure provides a useful hedge to our U.S. centered portfolio. In sum, we believe that we are buying a strong, profitable and growing company at a reasonable price.
Pitch research by Icaro Gouveia De Meira Lins, Tung Nguyen
Blogpost written by Icaro Gouveia De Meira Lins, edited by Tomas Dvorak