BYDDY - BYD Was Impressive In Q4 2023 But Work Remains

2024-01-03 10:51:38 ET

Summary

• BYD outsold Tesla in battery electric vehicle sales in 4Q23, but their vehicles are at a lower price point and have smaller batteries.
• BYD sold a total of 1,574,822 BEVs in 2023, surpassing all other automakers except Tesla.
• BYD still needs to prove its ability to sell a large number of vehicles outside of China.

Introduction

Per my November 2nd article , BYD’s ( OTCPK:BYDDY ) growth continues. BYD sold more battery electric vehicles (“BEVs”) than anyone in 4Q23. However, their vehicles are at a lower price point than Tesla vehicles and many of BYD’s models skew towards smaller batteries such that they tend to be driven fewer miles. Also, BYD still needs to prove their ability to sell a large number of vehicles outside China. My thesis is that BYD had an impressive quarter for 4Q23 but work remains.

Numbers Through 4Q23

CnEVPost shows how BYD kept closing the BEV gap with Tesla, quarter after quarter until they finally outsold them in 4Q23:

Per BYD’s December 2023 sales announcement , they sold 911,140 BEVs in 2022 and added another 663,682 in 2023 for a total of 1,574,822. This increase of 663,682 is more BEVs than everyone except Tesla sold outright in 2022 per EV-Volumes .

Work Ahead

Focusing solely on the total number of BEV units is pernicious because price, range and markets are important considerations.

BYD still has work to do in terms of selling a large number of high-value vehicles. One of the reasons we can’t value BYD on a unit to unit level with Tesla is because BYD’s BEVs are less expensive. Per a post from @NicklasNilsso14, the average BYD costs about $24,200 while the average Tesla is around $45,600. @alojoh posted about the price differences in late November. The price point is especially notable for the BYD Seagull which is as little as $10,400 per vehicle. Its top speed is only 80 mph and the battery capacity is under 40 kWh. 80% of BYD’s sales target a lower market segment so BYD and Tesla units aren’t comparable on an apples to apples level:

One of the reasons BYD BEVs are less expensive than Tesla vehicles is the battery. BYD’s December 2023 announcement said the cumulative installed capacity for the year was nearly 151 GWh but this is confusing as BYD makes batteries for other OEMS such as some of the Tesla units built in China. As for the batteries in BYD’s own vehicles, @Xil_llix made a graphic showing deployment of nearly 140 GWh from Tesla for 2023 compared to a little over 80 GWh for BYD BEVs. This is much more of a discrepancy than 2023 BEV units which were 1,808,581 for Tesla and 1,574,822 for BYD:

BYD sold 341,043 vehicles in December including 190,754 passenger BEVs. However, more progress is needed in terms of selling vehicles outside China as they only sold 36,095 overseas units for the month.

Valuation

Berkshire Hathaway ( BRK.A ) ( BRK.B ) saw things coming with BYD over a decade ago. Then vice chairman Charlie Munger revealed his thought process in the May 2009 annual meeting . First he noted that BYD’s founder, Wang Chuanfu, was only 43 years old at the time. He talked about BYD reinventing vehicle manufacturing with vertical integration. It was obvious they would make great things happen with their team of 17,000 talented engineers:

I think they make everything in that car except the glass and the rubber . There may be a couple of small exceptions. That’s unheard of. Whoever went into the automobile business and made every part, and made the automobile a best-selling thing? This is not normal. I mean, this is very unusual. And I regard it as a privilege to have Berkshire associated with a company that is trying to do so much that’s so important for humanity, when you get right down to it. Because it may be a small company, but its ambitions are large. And I don’t want to bet against 17,000 Chinese engineers led by Wang Chuanfu, plus 100,000 more talented Chinese in a brand-new area - constructed the way they want it. I will be amazed, if great things don’t happen here.

Despite the praise above, Berkshire first reported selling part of their position of 225,000,000 shares in August 2022. By October 2023, Berkshire had sold 137,386,858 shares or 61% of their original position such that they were down to just 87,613,142 shares. Being a knowledgeable shareholder, Berkshire makes me concerned about BYD’s valuation given the way they’ve reported selling shares since August 2022. My valuation thought process hasn’t changed drastically from my November 2nd article. The stock has gone down a bit since that time but I still view it as a hold.

Forward-looking investors should continue keeping an eye on BYD’s overseas units. They had overseas units of 30,521, 30,629 and 36,095 for October, November and December, respectively.

Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.

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