To The Moon

$BYD Co., Ltd.(BYDDY)$ is closing in fast on $Tesla Motors(TSLA)$ as the world’s biggest seller of pure electric vehicles (EV).

As competition in China — world’s biggest EV market, heats up BYD stands out with its soaring profits that reflect its sales strength.

Unfortunately, the same could not be said for BYD’s peers’ (eg. $XPeng Inc.(XPEV)$, $Li Auto(LI)$, NIO) whose stock prices have taken a “hit” recently.

The Hong Kong-listed EV maker shares have been up +1.7% alone this month, in the midst of a tumbling Hong Kong Hang Seng index.

Incidentally, BYD’s modest +1.7% gain is in stark contrast to Tesla’s -17% plunge for the same measuring period.

For that, Tesla has to thank its owner for its incessant price undercutting practice that led to Tesla’s [a] “value” erosion and [b] brand equity dilution.

No denying that mr musk knows a thing or two when it comes to technology-stuff but other disciplines like [a] branding, [b] marketing, [c] running a company “properly” - it’s been very telling that these are not his forte.

To be fair, Tesla’s YTD performance is still a credible +82.57% gain from its pits of $108.10 achieved on 03 Jan 2023.

With the latest Q3 2023 earnings that have missed the mark on both revenue and profits, this car maker is on a downwards trajectory, aided by bad news after bad news.

In contrast, BYD’s YTD performance is a respectable +23.04% gain, with a bottom price of $50 per share on 13 Mar 2023. It has since been on an upwards trajectory.

BYD’s latest happenings?

• Traders have snapped up bullish options on BYD.

• Analysts have raised their earnings projections for the Chinese company to a record high.

• This came on the heels of its preliminary quarterly report due out in October 2023.

• BYD posted all-time high sales despite intensifying competition and a broader slowdown in sales of China’s new-energy cars.

• BYD shares Jump on China EV Maker’s Record Quarterly Profit.

In the short to medium term:

• Analysts have been adjusting their earnings-per-share estimates for BYD upwards, based on its outlook.

• Tocqueville Finance, Hd of Asian equities, Kevin Net has said “BYD still looks like the safest bet versus Tesla in the short term, given its discipline in terms of balancing volume growth with profitability“.

• Mr Net further added that “BYD also has growing exposure to hybrids, which have been gaining market share in China and contribute to higher margins.”

• For Q3 2023,

  BYD sold a record total of 822,094 vehicles, including hybrids.

• Cementing its lead as China’s best-selling car brand.

• What particularly surprised industry observers is that BYD seems to be making more money per vehicle, despite the current price war; started by Tesla.

• According to JP Morgan estimates, “profit per car”, excluding the impact of the company’s electronics unit, rose as much as +46% versus previous quarter.

• Analysts believe BYD can maintain its profitability into 2024, thanks to [a] more sales of high-end vehicles as well as [b] continued overseas expansion.

• Pundits at HSBC Holdings Plc is expecting BYD to start deliveries of its high-end [a] Yangwang U8 and [b] Fang Cheng Bao BAO 5 in Q4 2023.

• According to hedge funds — Snow Bull Capital, CEO, Taylor Ogan — [1] “There is definitely a heavy China discount on the stock, but I do not see it getting worse”.

• Ogan also said that “Investors will have to wake up to BYD next year when its two high-end brands begin deliveries, and it exports noticeably into new markets”.

• Externally beyond the comfort of China, BYD claims high shares in countries including Brazil.

• However, US protectionism via [a] tax and [b] political rules & regulations have kept it from entering the “free economy” of the Western world. How

  ironic!

How I See It:

• Improving profit outlook has helped BYD’s stock become more attractive.

• It has also help to drive down its forward earnings multiple down to about between 18 - 20 times versus, Tesla’s forward earnings of over 50 times.

• BYD’s recent options data also look positive, as the volatility skew has shifted toward the more bullish side compared with a month ago.

• It is true that $Berkshire Hathaway(BRK.A)$ has been divesting its holdings in BYD from 24 Aug 2022.

• Putting things into perspective, in 2008 — Mr Buffet bought 225 million BYD shares, giving it a 7.73% stake, that is equal to the 20.49% stake in H shares.

• I believed Mr Buffet is selling BYD shares because [a] of his patriotism to America, [b] he does not think that there could be a breakthrough in relationship between the 2 most powerful nations in the short to medium term.

• Rather than getting his funds, monies, stuck in the Chinese market he much rather prefer to keep his shareholders’ monies somewhere he could “see’, “touch” and convert back to cash at the snap of the fingers.

• Lastly, the other possible headwind “coming” for BYD could be the European Union’s anti-subsidies probe into EVs made in China.

• Do you think BYD deserves a second look and dive-in investigation?

• Do you think you prefer Tesla over and above BYD?

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