BYD Company Limited (OTCPK: BYDDF) has surprised many observers by becoming one of the few electric vehicle (EV) producers that achieved profitable growth.
This success stems from a vast product portfolio that appeals to many buyers and next-level vertical integration that even Tesla (TSLA) has struggled to build. This article examines BYD’s fundamentals beyond the headlines to understand the company’s position and future prospects.
BYD’s Profitable Growth
BYD has demonstrated consistent and impressive financial performance over the last decade. The company’s operating income has grown significantly, from $203 million in 2014 to $4.6 billion in 2023, representing a 23-fold increase.
The revenue growth rate has accelerated from 2020 through 2023, with both revenue and operating profits remaining at historical highs. This is in contrast to Tesla, whose operating profits have seen a decline in recent quarters.
Key Factors for BYD’s Profitability
One of the key reasons for BYD’s sustained high operating profit is its next-level vertical integration. BYD produces all the batteries used in its fully electric and plug-in hybrid vehicles.
This self-reliance helps protect the company’s profit margins from fluctuations in production costs and potential supply chain disruptions. Tesla, on the other hand, has found battery production more challenging, making BYD’s integration a significant competitive advantage.
Diverse Vehicle Portfolio
BYD’s decision to cease the production of purely gasoline and diesel-powered cars in April 2022 marked a pivotal shift towards fully electric and plug-in hybrid vehicles.
This strategic move addresses “range anxiety” and the still-developing EV charging infrastructure, offering consumers the convenience of hybrids that require no change in driving behavior. BYD’s plug-in hybrid sales have continued to grow, demonstrating the company’s ability to adapt to shifts in consumer preferences.
Additionally, BYD Auto and its sub-brands (Denza, Yangwang, and Fangchengbao) offer over three dozen vehicle models. This variety starkly contrasts with Tesla’s lineup of five models: Model S, Model X, Model 3, Model Y, and the Cybertruck. The upcoming launch of BYD’s plug-in hybrid, four-door pickup truck, the BYD Shark, further expands its diverse offerings.
Strategic Focus on AI and Autonomy
While Tesla invests heavily in AI for its Full Self-Driving (FSD) software and the Optimus humanoid program, BYD has taken a more conservative approach.
BYD’s spokesperson, Li Yunfei, has expressed skepticism about fully autonomous driving, considering it far from reality due to various technological, ethical, and regulatory challenges.
However, BYD has recently obtained a conditional testing license for level 3 autonomous driving on high-speed roads, indicating some investment in autonomous technologies.
Market Position and Valuation
BYD’s stock price surged in 2020 and 2021, with substantial profit growth in subsequent years.
As a result, its price-to-earnings (P/E) ratio has declined to a reasonable 19x as of May 13, 2024.
Comparing BYD to its Chinese peers, Li Auto (LI) and Geely Automobile Holdings Limited (OTCPK: GELYY), reveals that BYD’s valuation multiples are generally in line with these competitors.
However, BYD has a higher market cap and faster revenue growth rate, which could justify a higher valuation multiple.
Risk Considerations
Despite BYD’s strengths, its apparent lack of significant investment in AI and autonomous driving technologies presents a potential risk.
As other players in the market, like Tesla, continue to advance in these areas, BYD may face challenges if it does not keep pace with technological developments. Investors should be aware of this potential risk when considering BYD’s stock.
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Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
