China’s Tesla
Chinese carmaker BYD (SHE: 002594)?overtook Tesla (TSLA)?in electric vehicle sales in the fourth quarter of 2023. Thus, BYD is now the world’s largest electric vehicle manufacturer.
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BYD claims to have sold 526,000 battery-only vehicles in the fourth quarter of 2024, the BBC reports. In contrast, Tesla claims to have delivered 484,500 vehicles in the fourth quarter of 2023. Conversely, CEO Elon Musk claims Tesla could sell two million vehicles in 2023.
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Thus, BYD has passed Tesla in electric car manufacture. Hence, investors will wonder if BYD is a value investment. Notably, BYD is far cheaper than Tesla. For example, BYD shares trading at ￥181.17 ($2.55) on the Shanghai Stock Exchange on 8 February 2024. Conversely, Mr. Market paid $188.44 for Tesla on 8 February 2024.
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However, Warren Buffett’s Berkshire Hathaway (BRK.B) sold over 60% of its BYD shares in 2023, Markets Insider?reports. Berkshire bought 225 million shares of BYD in 2008. Hence, Buffett owned 9.9% of BYD or 25% of its Hong Kong listings. Thus, the world’s most famous value investor could have lost faith in BYD.
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China’s Tesla
Like Tesla Motors (TSLA),?BYD has extraordinary manufacturing capabilities. For example, BYD became the world’s largest manufacturer of PPE face masks during the COVID-19 pandemic. BYD was producing over 50 million PPE masks a day during the pandemic, a press release claims.
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BYD built 3.02 million electric vehicles in 2023, Statista estimates. Conversely, 1.4 million of those vehicles were hybrids. Yet most of BYD’s production is electric. It built 1.62 million battery-only vehicles in 2023.
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They sell around 90% of those vehicles in China. However, BYD is expanding its exports fast. For example, there are five BYD models in European showrooms. BYD exported 243,000 cars in 2023, the China Passenger Car Association estimates.
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BYD has ambitious expansion plans. The company has launched its own ship the BYD Explorer No. 1?which can carry 5,000 vehicles to market. The BYD Explorer No. 1 set sail for the Middle East in January 2024. BYD plans three new European models and a factory in Hungary.
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Furthermore, BYD is planning direct competition with Tesla. It is planning a small SUV they call Yuan Up to compete with Tesla’s popular Model Y. Eletrek?claims the Yuan Up will cost $14,000 to $20,000.
BYD stands for Build Your Dreams. It claims to have over 30 industrial parks worldwide. In addition to cars, BYD builds rail, transit, trucks, and electronics. Like Tesla BYD makes its own batteries.
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Is BYD making money?
Financial data shows BYD is making money. Its quarterly revenues grew by 38.49% from ￥117.08 billion ($16.44 billion) in September 2022 to ￥162.15 billion ($22.78 billion) in September 2023.
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Similarly, the quarterly net income grew by 82.16% from ￥5.72 billion ($80 million) in September 2022 to ￥10.41 billion ($1.46 billion) in September 2023. However, the quarterly operating expense grew by 76.49% to ￥25.98 billion ($3.65 billion) in the same period. Yet the profit margin grew by 31.56% to 6.42 in the same period.
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However, BYD generates less cash. The quarterly cash from operations fell by -66.6% to ￥15.89 billion ($2.23 billion) in September 2023. BYD’s cash flow changed from ￥289.29 million ($40.63 million. in September 2022 to -￥23.96 billion ($3.37 billion). Hence, BYD’s cash flow shrank by an extraordinary -979.54%. Therefore, BYD is betting heavily on foreign expansion.
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What Value Does BYD offer?
However, BYD is gaining value, its total assets grew by 40.10% from ￥426.23 ($59.87 billion) in September 2022 to ￥623.28 billion ($87.54 billion) in September 2023.
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Similarly, BYD’s cash and short-term investments grew by 40.10% from ￥39.756 billion ($5.58 billion) in September 2022 to ￥66.37 billion ($9.32 billion) in September 2023. Thus, BYD has more value and cash.
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However, BYD’s total liabilities grew by 53.74% from ￥313.67 billion ($44.06 billion) in September 2022 to ￥623.28 billion ($87.54 billion) in September 2023. Thus, BYD is gaining debt, value, and cash at a fantastic pace.
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Yet, BYD’s share price fell from ￥288.33 ($40.50) on 9 February 2023 to ￥181.17 ($25.45) on 8 February 2024. Thus, BYD has growing value and a falling share price. Hence, I consider BYD a growth stock, but not a value because of the growing debt.
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BYD vs Tesla (TSLA)
In contrast, Tesla’s share price fell from $209.25 on 9 February 2023 to $186.56 on 8 February 2024.
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Conversely, Tesla’s quarterly revenues grew by 8.84% from $21.45 billion in September 2022 to $23.35 billion in September 2023. However, the quarterly income fell by 43.71% from $3.69 billion in September 2022 to $1.85 billion in September 2023. Tesla’s net profit margin fell by 48.24% to 7.94 in September 2023.
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Tesla’s cash from operations fell by 35.14% from $4.47 billion in September 2022 to $3.31 billion in September 2023. Similarly, the free cash flow fell from $1.091 billion in September 2022 to $646.75 million in September 2023.
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Tesla is growing. Its Total Assets grew by 26.22% from $74.43 billion in September 2022 to $93.94 billion September 2023. Similarly, the cash and short-term investments grew by 23.55% from ?$19.94 billion in September 2022 to $26.08 billion in September 2023.
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However, the Total Liabilities grew by 18.45% from $32.17 billion in September 2022 to $39.45 billion in September 2023. Like BYD, Tesla has more cash, more debt, and more value.
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In the final analysis. I consider both Tesla (TSLA)?and BYD risky growth stocks. I think both companies will grow into automotive giants. However, both companies will need to accumulate massive debts to achieve Goliath status. Thus, the risk in electric vehicles is high. Only those who can afford to lose money should buy electric vehicle stocks.
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https://electrek.co/2024/02/01/byd-shares-first-official-images-of-its-ultra-affordable-yuan-up-suv/
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