Chinese automakers have gone from incompetent to unstoppable in essentially two decades. Years ago, foreign automakers were forced to partner with domestic automakers in joint ventures to enter the Chinese market, and with the government’s focus on increasing their competitiveness in batteries and electric vehicle technology, they have surged ahead in advancements and affordability.
One of the few to see this coming was apparently Warren Buffett, who was an early investor in the leading Chinese automaker BYD. Let’s look at why — and what opportunity lies ahead from here.
Unknown, for now
BYD may not be a household name in the U.S. market, as the company doesn’t sell vehicles here currently, but it’s taken the world by storm in recent years. When most investors think of electric vehicle (EV) stocks, their mind first goes to Tesla. That’s fair, as Tesla essentially changed the game when it brought EVs mainstream. But BYD has quickly caught up to the competition, and in many ways has surpassed its rival.
Last year, BYD overtook Tesla on overall annual revenue, reporting $107 billion compared to Tesla’s $98 billion. BYD has also done an incredible job improving its financials and bottom line, also surpassing Tesla during the first quarter. BYD reported that its net profit increased 100% over the prior year, to roughly $1.3 billion. That was far ahead of Tesla’s disappointing first-quarter results of $409 million, a drop of roughly 70% compared to the prior year.
Leading technology and expansion
BYD has driven growth in not only deliveries and revenue, but in advancements as well. Consider that BYD made its advanced driver-assist systems standard across its lineup, with Chinese competitors following suit. The company also launched a new system that can give 250 miles of charge in only five minutes. Its 1,000 kW chargers are four times as powerful as Tesla’s current chargers, which can add roughly 200 miles of range in 15 minutes.
While the company doesn’t plan to enter the U.S. market anytime soon, that doesn’t mean there isn’t international growth to be had. In fact, management is expecting to sell more than 800,000 vehicles outside of China this year, which is more than double the prior year.
BYD is currently building a factory in its second-biggest market outside of China, Brazil, as well as factories in Thailand, Hungary, and Turkey. The automaker is further tailoring products for specific markets such as the Sealion 7 SUV in Europe. BYD certainly isn’t planning on resting on its previous accomplishments.
Competitive advantage
Those that know Buffett and his investments understand that he invests in companies with durable competitive advantages. BYD is no exception, and the company that began as a battery maker before diving into automobiles has an advantage in its vertical integration driving down costs significantly. It makes a high percentage of its components in-house, including a lithium iron phosphate battery it pioneered in 2020. The battery has a unique shape that allows it to maximize space in the battery pack while reducing the chances of catching fire when damaged.
What it all means
BYD checks just about every box an investor could ask for today. It’s posting strong growth on both the top and bottom lines, expanding successfully outside of its home market, leading in technology, and boasts competitive advantages with its vertical integration and battery costs. It also still has ample growth available in the U.S. market one day, if tariffs and EV demand make an entry more appealing.
BYD has quickly caught up to Tesla in a number of metrics and has momentum on its side. It’s certainly one of Warren Buffett’s most insightful investments and one to buy hand over fist as the world transitions to EVs.
Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.