Why no mention of BYD (1211.HK)?
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Posted Aug 6, 2020, 5:12 PM UTC · edited
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I think they’re interesting.
Started following them after Berkshire bought in 10% and Munger was excited, based on Li Lu’s recommendation.
I met Li Lu once at a Daily Journal shareholder meeting, I asked him about BYD and he was very excited about the prospects of EVs in China, especially with respect to anti-smog for pollution choked cities.
The stock has been sleeping ever since. If you look at something simple like top line revenues for BYD— it’s been the same for the last 3 years. Why? In a country where the all powerful govt is pushing EVs to the max and wants to create a national champion to dominate the EV/battery industry over the next few decades, why in the world is a company like BYD not growing like gang busters? I think I would start any investigation with trying to answer that.
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I have a tremendous amount of respect for Charlie and his investment style. His discussion of how companies like NCR were so special showed me how much historical knowledge he tries to draw upon.
I don't know much about BYD and that remains a challenge. I'd be thrilled if someone explained where they excel and/or where they might be experts.
One aspect that I'm very curious about is why they chose to not really enter the North American market. I believe Greg Abel made a comment once that North America wasn't nearly as conducive to this type of technology. He did not state why, but I can only assume it has to do with heating needs in the extreme cold and the long ranges needed. In much of Asia, road congestion can be so high that you only need a few miles of range, but it takes 1-2 hours to complete the distance. In that situation, an EV can do very well, because you don't need such a large battery and that allows incremental costs over a combustion engine to be very low. If the decision to not target North America was due to weather and long distance travel, then it might be interesting to know if the facts have changed or if it's still not as practical. I'm guessing Wang Chuanfu made an informed decision, but I wish I knew his thought process.
As someone outside of China, I just can't seem to get much information about their products, how they compare, what might be unique, and so on. Has anyone taken time out to study BYD? Is there a reason they sell so many cell phone batteries, a strategy very different than Tesla and others that focus much more on batteries for vehicles?
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My hypothesis about lack of success in spreading to US by BYD is:
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their lithium iron phosphate battery has a lower energy density per kg which is easy to manage with respect to thermal runway risk; that was their technology choice in trade offs. as a result their range does not match a US buyer’s expectations for range and performance. in contrast, NCA batteries have great energy density per kg but higher fire risk so demand more battery cooling hardware and software—and if you can solve that then you’ll have range and performance that US buyers want
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build quality for early BYD EVs were meh, communist utilitarian, styling taken from the 90s, completely uncompetitive vs buyer expectations in US. they improved in recent models, but still meh.
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couldn’t sell their cars at a competitive price in the US with shipping costs and import duties
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they were planning to rely on dealerships for distribution and service, had a hard time building out a network
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they tried the Lancaster factory to focus on buses, there were complaints on range, quality
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I’m not sure if Stella Li (president of BYD US) was moved here because she’s going to be aggressive at growing the business or if there were other internal politics reasons for her to get pushed out of china.
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Interesting information on the chemistries. Maybe they'll do better is Asian markets where you get those hotter temperatures and don't have to worry about such an intense cooling design.
I did hear about the buses - I think the city of L.A. returned the whole fleet of purchases due to less range than promised on their routes (including on inclines) and they broke down more often. Bus buyers are highly sophisticated and their purchase agreements can be 50-100 pages long with lots of specifications and requirements. They may have not been used to that here in the states where buses need to last for 12-15 years. The longevity of buses in mainland China is apparently much less, I once heard 5 years, but don't know if that was an exaggeration. The climate here can involve lots of snow, salt, and cold, so to design a chassis with the normal bus weight and the battery pack weight in addition is not easy. BYD might not have to win at this U.S. game if their approach works well in other parts of the world and if they continue to improve their products.
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Multiple Chinese subsidy cuts and covid significantly dampened EV car demand and also smartphone overhang dented sales. Now both are behind it so backward looking doesnt properly reflect.
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The problem with all this EV hype is that car manufacturing is inherently a low margin business outside niche markets, and EVs will be even more commoditized with lower barriers to entry than ICE vehicles (fewer moving parts and batteries are the only secret sauce tech).
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So where are the cars with ranges similar to Tesla's max range then, if there are lower barriers to entry?
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This isn’t a thesis post, so not sure why it’s marked as such. Also, Tesla’s YTD EV numbers look materially incorrect, where are you getting this data?
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TSLA EV units were china only. Edited to also include WW.
Doesnt change anything... same idea holds....
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Because it is the odd man out of the party.
BYD vehicles are good, but they don’t have that POP or big marketing team behind it. The other issue is when they take it to the US, the association is “Chinese = cheaply made/built”.
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On one hand, I agree, especially given Warren Buffet's partial ownership in the company. I've been very surprised it hasn't gotten much buzz.
However, I also read that BYD's build quality and performance is quite poor and they're relying on political lobbying to sell in Los Angeles, currently their best non-China market.
https://www.latimes.com/local/lanow/la-me-electric-buses-20180520-story.html?_amp=true
I'm heavily invested into $HCAC, which could possibly bring BYD's competitor Proterra public. (It's only speculation right now.) I believe its quality is better, it sells nationwide, and being American-owned and manufactured will help it win contracts from local governments over BYD.
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wait you mean BYDDF or BYDDY?
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BYDDF is US ADR BYDDY is OTC for 1/10 of a share.
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Multiples are really far down the list of contexts that matter for how these companies trade.
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I think Tesla's multiple is way too crazy to price any other competitor off it, we're talking about a company with a P/E of over 750.
If you really believe the EV industry is capable of growing that fast, then buy in. I would advise caution, though.
What’s Tesla’s P/E from selling cars or batteries?
it’s 700 p/e I think. they just barely squeaked out a profit in Q1 and Q2 2020 (at this point ppl will jump in and say reg credits funny money blah blah). if you’re a traditional value investor you’d have to run away screaming from TSLAs multiple.
Not sure what the multiples are for each off the top of my head, but the cost of their energy generation and storage businesses exceeded revenues in Q2 while the auto business generated a net profit
negative technically. they only made a profit on auto bc of regulatory credits