BYD Stock: Outselling & Outperforming Tesla (OTCMKTS:BYDDY)

Green Energy Vehicle At 2021 Wuhan International Auto Show

Getty Images

The Financial Times recently reported that China’s BYD (OTCPK:BYDDY) – backed by Warren Buffet’s Berkshire Hathaway (BRK.A) – has overtaken Tesla (TSLA) to become the global leader in EV sales. In addition, BYD has leapfrogged Samsung to become the #2 global provider of EV batteries. BYD’s success has not been limited to EVs and batteries: it’s stock is up 15% YTD – significantly outperforming Tesla during this year’s market correction:

BYD vs Tesla price
Data by YCharts

As seen in the May sales report below, BYD’s total “new energy vehicle” sales (which includes BEVs and PHEVs) grew 348% yoy to 118,135 units. The jump was driven by a huge (583% yoy increase in PHEV sales:

BYD May Sales Report

BYD (via HK News)

Meantime, Barron’s reported last month that BYD may soon supply Tesla with EV battery packs, quoting BYD executive VP Lian Yubo:

We are good friends with Elon Musk and we are preparing to supply batteries to Tesla very soon.

In June of last year, I reported on Seeking Alpha about BYD’s development of its new line of lithium iron phosphate (“LFP”) based “Blade Batteries” for use in its top-line and long-range HAN luxury EV (see BYD’s New Blade Battery). In addition to Tesla, note that Toyota (TM) will also reportedly use BYD’s Blade Battery packs for its medium-sized passenger vehicles for the Chinese market.

That being the case, BYD certainly seems to be firing on all cylinders these days as both its EV and battery sales appear to be rapidly gaining market share. Meantime, BYD is buying back stock and during a 3-day period in June bought back 2.95 million shares. Now that was only 0.10% of the outstanding shares, but it’s a start and we know how Buffet likes companies that buy back their own shares (i.e. like BRK’s #1 holding: Apple (AAPL)).

However, keep an eye on Hyundai Motor Company (OTCPK:HYMTF) (OTCPK:HYMPY). Bloomberg reports Hyundai has taken the EV market by storm with its dual offering of the Hyundai Ioniq 5 and the Kia EV6 – which promptly passed the Nissan Leaf, Chevrolet Bolt and “every other electric vehicle on the market not made by Tesla”:

Hyundai's EV Market Splash

Bloomberg

Hyundai’s success certainly got Elon Musk’s attention:

Elon Musk's Hyundai Tweet

Twitter

Going Forward

Clearly BYD has ramped up both its EV and battery manufacturing capacity, both of which bode very well for the company going forward. That is especially the case given that China is well-positioned in terms of raw material supplies and that the country will certainly prioritize domestic demand over foreign competitors.

That being the case, I suspect the Q2 EPS report will continue the trend of the excellent Q1 report released in late April – which saw revenue climb 63% yoy while EPS grew a whopping 250%:

BYD Q1 Report

BYD (via HK News)

Also, note the massive increase in CFO (up 8,300%+).

Meantime, BYD continues to make progress with its global EV bus strategy, which I have covered extensively on Seeking Alpha in the past. The company’s new C10MS Double Decker (see below) was the first battery electric double-decker bus to pass the stringent and rigorous U.S. Federal Transit Administration’s road testing guidelines at the Model Bus Testing Program in Altoona, Pa.

45' C10MS Double-Decker Bus

BYD

Valuation

With a forward P/E of 139x, BYD is arguably highly valued as compared to the overall market and compared to Tesla’s 59x forward P/E. However, given the demonstrated growth rate in revenue, earnings, and net cash flow (see Q1 graphic above), BYD stock appears to justify that valuation level. I say that because the Q1 results are not a “one-off” in my opinion and were based largely on growth in BYD’s passenger car sales as the company’s battery sales to Tesla and Toyota have yet to kick into full gear. Combined, these two growth levers should enable BYD to quite easily grow into its valuation level over the coming 12 to 18-months.

Note also that BYD’s balance sheet is rock solid, ending the last quarter with cash equivalents of $6.65 billion and total debt of only $4.45 billion.

Risks

All of the typical risks with China-based companies certainly hold true with BYD as well: a relative lack of transparency when it comes to financial results and budgeting and a really hard time for American investors to get timely information on the company (I have figured out how to do it, but it took a lot of work). Also, there is always the threat of Chinese government intervention. That said, one would think that a high-profile backer like Warren Buffet might (somewhat …) reduce the risk of such an occurrence.

Also, note that BYD has recently suffered some consumer backlash regarding a battery recall. I suspect this is just a bump-in-the-road as there appears to be no fundamental defect that cannot be overcome as the recall had to do with a manufacturing issue with a venting valve in the power pack tray. That is, as far as I know there was no fundamental electrical or technical problem with the guts of the LFP Blade Battery itself.

Summary & Conclusion

As I have opined on Seeking Alpha in the past, BYD has been playing the long-game in the EV market: prioritizing its battery manufacturing and technological prowess, establishing relationships (and jobs) around the globe with its leading electric bus business, and over the last couple years, focusing on its own line of passenger EVs – including the luxury HAN as a direct competitor to Tesla’s high-end models. Given BYD’s recent Q1 EPS report and its strong out-performance in the market-place, BYD is now “Building Your Dream” investment vehicle. BYD is a BUY.

I’ll end with a 5-year chart of the stock price:

BYD stock price
Data by YCharts

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