Although competition is beginning to cut into this electric vehicle’s numbers, the market in China continues to be strong, with new energy vehicle (NEV) production forecast at 700,000 vehicles this year.
BYD Co. (BYDDF)
From Crisis and Opportunity
The world’s biggest electric (EV) company is BYD Co. (BYDDF), headquartered in China.
You might not know it, but China buys more cars than any other country. And it’s also the largest electric car market with 40% of electric cars being in China. That’s double the amount of what’s sold in the U.S.
You may not know BYD, but the company got started about 20 years ago and perfected the lithium-ion batteries that are used in phones.
Somewhere along the line, Warren Buffet bought up 19% of the company while it turned to making cars. More recently, Samsung bought up 4% of BYD.
At one point the CEO of BYD, Wang Chuanfu, called up several Italian car designers and built an assembly plant for upscaling the company’s battery for cars. In true Chinese fashion, he borrowed what he could, stole the rest, and added a little pricing magic.
Before you knew it, he was producing green battery and gas-powered hybrid cars for the Chinese market.
And he was doing it at half the price of a Toyota Prius and one-fourth the price of a Chevy Volt.
Compare this with the No. 1 EV car company in the industry, Tesla:
Year Tesla Net BYD Net
2014 -$674,914 $434,000
2015 -$88,663 $2,823,000
2016 -$674,914 $5,052,000
* All numbers in thousands
That being said, in late 2016, Chinese politicians cut subsidies for EVs by 20%. This hurt BYD, and by March of 2017, we saw net revenue cut in half and income growth drop 32% at the same time.
But things have changed. More recently, in its five-year plan, China has set aggressive goals for cutting fossil fuel-powered cars. The country wants at least 20% of vehicles to be electric or plug-in hybrids by 2025. And China is going to do it by banning the combustion engine.
According to Bloomberg:
The world’s second-biggest economy, which has vowed to cap its carbon emissions by 2030 and curb worsening air pollution, is the latest to join countries such as the U.K. and France seeking to phase out vehicles using gasoline and diesel. The looming ban on combustion-engine automobiles will goad both local and global automakers to focus on introducing more zero-emission electric cars to help clean up smog-choked major cities.
This news, coupled with a very real crack down on polluting factories in China, has caused BYD stock to break out of its doldrums and takeoff. It has since pulled back over 33%, which provides a nice entry point.
One of the largest drivers for growth will be the e-bus and e-truck. On top of its Chinese factories, BYD is making large vehicles in Lancaster, California, and has grown to the point where it’s producing 1,500 e-busses a year. It can also make forklifts, trash trucks, and delivery vans.
It’s also making and selling electric monorails.
The company has a market cap of $22 billion and a P/E ratio of 35 and a forward P/E of 19.49. This compares to Tesla with a $49 million market cap and zero P/E (because it has no earnings).
Since the low in March, revenue has been back on track:
China’s economy grew by 6.8% in the third quarter. In August, Chinese auto sales rose 5.3%.
If you just look at EV sales, it was all good news.
Globally, electric car sales finished September 2017 with over 123,000 sales for the month, up 55% from September 2016. This was a record for the industry, easily beating the previous record of 103,746 sales from last December. Year-to-date sales are up about 50% from the same period last year. Of note, 64% of all global electric car sales in 2017 are purely electric.
China’s electric car sales were 59,000 in September 2017, up 80% from September 2016. Electric car market share in China is currently at 1.8%.
All in all, it seems like a good time to invest in the world’s No. 1 EV car seller: “Buy” BYD Co. Ltd under $9.
Stop-Loss: $5.50
One-Year Price Target: $16
Christian DeHaemer, Crisis and Opportunity, www.angelpub.com, 877-303-4529, November 3, 2017