BYD Stock Analysis – The Chinese EV Maker Owned by Buffett
BYD Stock and Chinese stocks in general are getting cheap; trade wars, fears of China slowing down and a global recession weigh on all stocks as the main investing mantra is index fund or ETF investing. Consequently, investors sell their index funds and all stocks fall. Some stocks are at decade lows while their businesses are at decade highs. Therefore, it is time to look again at the sector to see whether there are opportunities.
Analyzing businesses is what I do full time, I try to find undervalued investments that provide low risk and high long-term upside.
I know the story that Chinese stocks are risky, you can’t trust the accounting etc. But what if Berkshire owns 10% of it, Munger owns a bit privately?
BYD Stock Ownership
Then what if the company is doing things as Tesla? actually is the leader in the worlds, Giga, piga, busses, trucks, cars, but mostly batteries. Plus, they are profitable. Let’s look at BYD.
When Buffett and Munger own something, it is always smart to look into it because it might just be one of those kinds of businesses that will keep delivering. Perhaps like Coca-Cola or Geico did for Berkshire.
When looking at BYD – that according to the company stands for ‘build your dreams’, we have to keep in mind the following things:
- It is in the interest of China to get rid of oil because they don’t have much of it, there is a lot of smog and the technology development that it brings would be beneficial to the economy. China could become a global leader in the sector.
- China is a communist country, which means some things are done in different ways than in the west. If the government says no more fuel engines in 2030, so it will be.
- BYD is the largest EV, battery producer in China. This gives it an advantage.
- Given that Berkshire and Munger are invested, we have to investigate what is the margin of safety in relation to the huge upside coming from Chinese and global electrification.
- Subsidies are phased out – can BYD survive until the technology can stand on its own?
- There not many tangibles to catch on to – lots of potential however.
HK: 1211 – OTC: BYDDF – A Shares: 002594 (Shenzhen Stock Exchange)
BYD Stock Analysis
BYD is principally engaged in the automobile business which includes traditional fuel-engine vehicles and new energy vehicles, handset components and assembly services, as well as rechargeable battery and photovoltaic business.
In short:
- Leading EV producer in China with domestic brand. For the last four years, BYD has been the company that sold the most EVs globally.
- Handset components with clients like Samsung, Huawei, Apple, Lenovo, vivo, Xiaomi. They did make batteries for your Nokia or Motorola Razr phones in the past.
- Leading rechargeable battery manufacturers in the global arena with significant expansion plans.
- MidAmerican Energy Holdings Company (now renamed as Berkshire Hathaway Energy) acquired 225 million H Shares of the Company in 2008, representing approximately 8.25% of the Company’s total capital at present.
- The company is also involved in urban rail projects. It isn’t a big deal now but the management expects it to lead to good growth in the future.
The automotive segment is becoming more and more important, while the handset business is not growing as fast and rechargeable batteries didn’t grow in 2018. However, with the application of 5G, also the handset sector where they produce glass, metal casts etc. might see faster growth. 87% of sales come from China.
Source: BYD 2018 annual report
During 2018, vehicle sales in China fell 2.8%, but new energy vehicle sales increased 61%.
All in all, BYD is a company committed to solving the problems of air pollution while enjoying healthy growth.
Here is the more detailed and longer video analysis.