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Chinese EV giant Build Your Dreams, better known as BYD Company Ltd., has taken the lead in global electric vehicle sales, overtaking the US behemoth Tesla. BYD Co. first stole Tesla’s crown in June 2022 with global half-yearly sales of 641,000 units. For Q3, Tesla’s global sales were 343,830 units with a y-o-y increase of 3%, whereas BYD sold 537,164 units in Q3 with a y-o-y increase of 187.01%.
BYD’s new energy vehicle sales increased by 249.56% y-o-y in September 2022 alone to 201,259 units from 71,099 units. Looking at the market demand for EVs and new energy vehicles, BYD has decided to expand in more than 15 international markets, such as Sweden, Germany, Denmark, Israel, and Thailand, to name a few. In July 2022, BYD Company Ltd. announced its entry into the passenger vehicle market in Japan, debuting three models- BYD ATTO 3, BYD DOLPHIN and BYD SEAL. BYD also announced pre-sale prices for its European passenger car range in late September 2022.
BYD Co’s business model
Founded in 1995, BYD is a multinational company leveraging high-tech innovations and operates in mainly four industries — auto, electronics, new energy and rail transit. The company started with developing expertise in rechargeable batteries and has slowly established itself in over 70 countries across 6 continents with multiple business verticals.
BYD Co has established itself as a market leader in the energy and transportation industry by developing a Zero Emissions Energy Ecosystem that consists of cost-effective solar power generation, dependable energy storage and cutting-edge electrified transportation. “Only a few years ago they were at a level not worth taking seriously, but now they’re at a level where it takes a lot of nitpicking to spot anything that looks like a defect,” an employee of a Japanese automaker previously told Nikkei Asia.
The Chinese EV manufacturer’s combined sales of pure electric and hybrid plug-in vehicles increased to 1.86 million units in FY22, exceeding the previous four years combined and accounting for over 30% of all new-energy vehicle sales in China. BYD posted a net income of 16.6 bn yuan ($2.4 bn) for Q4, up 446% over the previous year.
BYD’s business is doing well as the EV sector is receiving benefits from Beijing. The auto sector has been a major beneficiary of a variety of tax incentives and sales subsidies amounting to 5 bn yuan in 2021. BYD has overtaken Volkswagen AG as the world’s third most valuable automaker behind Toyota and Tesla Inc. The company’s international expansion plans are being backed with a new manufacturing unit in Thailand with a capacity of 150,000 units going operational by 2024.
How is the stock doing?
Listed on the stock exchanges of Shenzhen (002594.SZ) and Hong Kong (1211.HK), a broad product range and higher sales helped BYD’s stock, which is better off despite the market rout in China. BYD’s current market capitalisation is $82.09 bn, and the stock has a PE ratio of 48.35 and a forward PE ratio of 42.55. The current price-to-book ratio stands at 6.54.
While higher sales have been driving the share price up and absorbing the higher input costs and Covid disruptions, the trimming of shares owned by Warren Buffett’s Berkshire Hathaway Inc. is making the market volatile for BYD. Warren Buffett sold around 6.3 million shares between June 30, 2022, and August 24, 2022, as per the calculations based on BYD’s interim report and the investor filings. Berkshire, which acquired 225 million shares in September 2008, has been by far the largest shareholder in the EV maker and has reaped profits of over 2,000%. Coming to 2023, Berkshire Hathaway has sold its stake in BYD’s issued H-shares to 10.90% from 11.13%, selling $68.8m worth of shares.
Over the past year, BYD’s share price has fallen by more than 35% after Berkshire Hathway trimmed its stake by about $100 m. “In the short term, I expect continuing selling pressure from ‘value investors’ like Warren Buffet,” Qi Wang, CEO of MegaTrust Investment (HK), told Caixin Global. “In the longer term, the risk is from three things: rising competition, disruptive tech innovations such as hydrogen, and unpredictable consumer tastes.”
The future of BYD Co.
“Electric vehicles are the key technology to decarbonise road transport, a sector that accounts for 16% of global emissions. Recent years have seen exponential growth in the sale of electric vehicles together with improved range, wider model availability and increased performance. Passenger electric cars are surging in popularity,” said a report by IEA.
BYD Co. is building a manufacturing plant in Thailand with a capacity of 150,000 units. The company is also constructing an EV parts plant in Shanwei, a coastal city in China, which will have an annual capacity of 600,000 units with production planned to begin in late 2023. BYD’s EV exports have mostly been limited to the public sector till recently with products like buses, trucks and other commercial vehicles gaining brand recall and recognition, especially outside China. With the entry into multiple markets and global expansion, the exports of EVs are expected to rise between 300,000 and 500,000 units in 2025, according to Hua Chuang Securities.
“However, electric vehicles are not yet a global phenomenon. Sales in developing and emerging countries have been slow due to higher purchase costs and a lack of charging infrastructure availability,” the IEA further reported. The tax exemptions by the Chinese government won’t help BYD in external markets and tough competition from new and existing players could be a challenge.
