BYDDY - BYD Is Still Doing Well After The Expiration Of Subsidies

2023-03-13 06:10:35 ET

Summary

• China leads the world in BEV sales, and BYD is by far the most dominant BEV company in China.
• Combining the China market for January and February, the BYD Dolphin BEV had sales of 40,264 units relative to sales of 21,056 units for the Tesla Model 3.
• BYD’s overall China sales for the first 2 months of the year jumped over 76% from 179,457 units in 2022 up to 316,417 units in 2023.

Introduction

China still leads the world with battery electric vehicle ("BEV") sales despite the fact that major subsidies expired in 2022. My thesis is that BYD ( OTCPK:BYDDY ) continues to have strong sales despite the fact that 2023 is starting out as a challenging year for Chinese BEV makers.

At the time of this writing, ??1 Chinese Yuan equals $0.14.

The Numbers

Reuters reports that new energy vehicle ("NEV") sales fell 6.3% in China for the month of January as major subsidies ended in December. The lack of major subsidies hurts some BEV companies in the short run but BYD is well positioned for the long run. China has an enormous economy and a massive car market. BYD is by far the #1 battery electric vehicle ("BEV") company in China. Visual Capitalist shows the importance of China's GDP with respect to the global economy:

Per the Financial Times , China is by far the most important country in the world for BEV sales by volume and growth will continue even as major subsidies have stopped:

When looking at the China Passenger Car Association ("CPCA") numbers, I like to focus on BYD and Geely ( OTCPK:GELYY ) as opposed to state-owned companies like GAC and Changan . The February 2023 CPCA National Passenger Car Market analysis says BYD, Tesla ( TSLA ) and Geely had gross units of 191,664, 74,402 and 23,283, respectively. The CPCA analysis goes on to reveal that February exports for BYD, Tesla and Geely were 15,002, 40,479 and 892, respectively. What this means is that net units for BYD, Tesla and Geely in February 2023 were 176,662 [191,664 - 15,002], 33,923 [74,402 - 40,479] and 22,391 [23,283 - 892], respectively. The CPCA February 2023 Retail Sales Ranking Express report shows the list of new energy manufacturers net of exports for February. BYD increased 103.8% from 86,669 units in February 2022 to 176,662 units in February 2023. Tesla increased 46.2% from 23,200 units in February 2022 to 33,923 units in February 2023:

The same CPCA report also shows the sum of January and February and this is more important than February alone because individual months can be lumpy. BYD increased 76.3% from 179,457 for the first 2 months in 2022 to 316,417 for the first 2 months in 2023. Tesla increased 42.8% from 42,546 for the first 2 months in 2022 to 60,766 for the first 2 months in 2023:

Looking at some of the top BEV models in China for the first 2 months of 2023 from the CPCA, the BYD Dolphin BEV had 40,264 units while the Tesla Model 3 had 21,056 units. On the SUV side for the first 2 months of the year, the BYD Yuan Plus BEV had 34,621 units while the Tesla Model Y had 39,710 units. CleanTechnica does a nice job showing the top NEV models in China for January 2023 and we see that BYD is in a dominant position:

Valuation

The CPCA shows that BYD increased China sales by 76% from 179,457 for the first 2 months of 2022 to 316,417 for the first 2 months of 2023. Meanwhile, Tesla increased China sales by 43% from 42,546 for the first 2 months of 2022 to 60,766 for the first 2 months of 2023. BYD's overall global growth percentage isn't vastly different from their China growth percentage because other segments aren't yet big enough to move the needle. As such, we shouldn't expect to see 320% overall growth again but 76% is still very nice. Here are the 1H22 numbers from the Financial Times :

One of the reasons I believe BYD and Tesla deserve premium valuations is that they set themselves apart from other carmakers by being vertically integrated .

The 2022 estimated results show non-recurring net profit of RMB 15,100 million to RMB 16,300 million which is well above the 2021 figure of RMB 1,254.62 million. Given the way this is growing prodigiously, I could see a high end valuation of up to 50x the RMB 15,100 million which comes to RMB 755,000 million or a little over $100 billion.

2 BYDDY ADRs represent 1 regular share and they had 2,911,142,855 combined shares in the 2022 interim report. As such, the market cap is about $75 billion based on the March 10th BYDDY ADR price of $51.31. The market cap is under the high end of my valuation range so I think the stock price is not outlandish.

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