Is BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) The Next Tesla (NASDAQ:TSLA)?

- April 18, 2017

In this article we will compare BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) to see how it stacks up to Tesla (NASDAQ:TSLA).   Many view BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) as the Tesla (NASDAQ:TSLA) of China, and I agree that is a fair description.  That could explain why legendary investor Warren Buffet of Berkshire Hathaway is one of the company’s investors. Build Your Dreams ((BYD)) is a world leading green energy company.  BYD Co is a Chinese company based in Shenzhen China with factories and sales all over the world.  They are listed in Shenzhen as BYD Co (SHE:002594), in Hong Kong as BYD Co (HK: 1211) and in the US as BYDDF and BYDDY.

BYD Co main revenues come from conventional car sales, electric buses, and electric cars. They also sell energy storage and photovoltaic (PV) panels. The company is vertically integrated, and even has ownership in some lithium mines.

History of BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF)

BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) started as a battery manufacturer and phone components assembly business.  In 2008 Warren Buffet and Charlie Munger’s Berkshire Hathaway bought 10% of the BYD Co Hong Kong listing, back when the stock was just HKD 8.  The Hong Kong stock price is now HKD 46.25, a tidy gain for Berkshire.

Since then BYD had become better known for its electric cars, and in 2016 was the global number one electric car seller with 100,183 electric car sales, and 14,903 electric buses.

Global EV sales by model – to end December 2016 and for 2016

Source  EV Sales

What to expect from BYD Co (HK:1211) in 2017

In early 2017 BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) (HK:1211) electric car sales have struggled due to the Chinese Government reducing the subsidy by 20%. However in May or June of this year it is expected that the Chinese Government will bring in a ZEV credit system, which will be a huge boost to BYD.  Added to this BYD‘s energy storage division should do well as China plans to boost energy storage by ten-fold to 14.5 gigawatts from 2016 to 2020.  Finally BYD launched their monorail division in 2016, which should be announcing several new contracts in 2017.  CEO Wang believes this division has the potential alone to double BYD’s revenues going forward.

Valuation

The table below gives a comparison of  BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) and Tesla (NASDAQ:TSLA)  financial metrics.  For example BYD (HK:1211) has a market cap of US$18.98b and their Enterprise Value ((EV)) is US$23.2b, compared to Tesla (NASDAQ:TSLA) market cap of US$49.5b and EV of 53.4b.  The EV/EBITDA ratios shows BYD clearly ahead with a lower ratio of 10.3 compared to TSLA at  49.3. Clearly BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) is valued a lot better, and one could argue has a better growth outlook given their sales track record thus far.

  Comparison of BYD (BYDDY) and Tesla (NASDAQ:TSLA) financials

 

BYD Co

Tesla

Market Cap (US$)

18.98b

49.5b

Enterprise Value (US$)

23.2b

53.4b

EV/EBITDA ratio (2017)

10.3

49.3

Earnings Per Share (2016)

CNY 1.88

US$-4.68

PE ratio estimate (2017)

26.8

73.2

Net profit margin (2016)

4.88%

N/A

 

From the chart below,  BYD Co 2016 net profit margins are reasonable at 4.88%, and forecast to rise.  BYD currently trades on a 2017 PE of 26.8, and a 2018 PE of 20.  BYD is very cheap, if BYD can deliver on its promise of high growth.   Analyst consensus target price for the Shenzhen listing is CNY 59, currently representing 15% upside.

BYD financials graph

Source 4-traders

Conclusion

BYD Co Ltd (OTCMKTS:BYDDY) (OTCMKTS:BYDDF) offers positive earnings in the huge growth sectors of electric vehicles and energy storage.  BYD is valued much cheaper than Tesla stock, has positive earnings, and has similar growth prospects albeit Tesla will do better in the US and BYD will do better in China.

Early 2017 have seen disappointing EV sales for BYD; however this was industry wide (in China) and should prove to be short term.  I would view the stock as an accumulate on weakness and buy on the dips.

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2 Comments

  1. David_J
    Posted April 18, 2017 at 7:32 pm | Permalink

    Eddy,
    No love for Green Power Vehicle (GPVRF)? They will install the first US 100% EV transit vehicle fleet in Porterville Calif. within the next year, with the help of a $10million grant from the state. Also recently got an ex-BYD executive on board their management team. Factory (in Porterville) will be up and running next year as well. They already have a backlog of orders. Plus, their buses are cost competitive with ICE buses even without government subsidies, but they need some serious road time to prove this one out.

  2. Eddy Parton
    Posted April 20, 2017 at 8:13 pm | Permalink

    David J,
    Appreciate the your thoughts and information on Green Power Vehicle (GPVRF). I agree they need some time but a company to keep an eye on for sure. Thank You, Eddy

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