In the world of electric
vehicles, Tesla has Reigned supreme. But its
days as top dog may be Numbered. In China, the
world's largest EV market, It's been losing ground
to domestic automakers as A ruthless price war has
inflamed an already Competitive market. If Tesla had not had price
cuts of 20 to 30%, they Probably would have
actually had sales drop Last year. And there's one carmaker
in particular that has Given Tesla a run for its
money – Warren Buffett Backed BYD. The Chinese
automaker logged 2.4 Million new car insurance
registrations in 2023, Making it the top brand
in China with a market Share of 11%. I don't think anywhere in
the history of the Automobile has any
company enjoyed such Explosive growth in such
a short period of time? BYD has grown into this
powerhouse. You look at the monthly
rankings, they're always At the top. In 2023, BYD produced more
than 3 million new energy Vehicles, which include
plug in hybrids and Battery electrics,
surpassing Tesla's Production of 1.84
million cars. BYD is so much ahead of
Tesla in China. It's almost ridiculous. Early on, Elon Musk was
dismissive of BYD. Chinese carmakers weren't
taken seriously by their Rivals. It used to be that foreign
brands had the majority of The market share in
China. Now it's Chinese Brands. And when you look
at the vehicles that these Chinese OEMs and Chinese
brands are putting on the
Market, they are some
very good vehicles. Now, they're a serious
threat as they not only Dominate the Chinese
market, but have grand Ambitions of expanding
globally. In 2023, BYD's exports
grew 334% to 242,765 Vehicles across 70
countries. About 40% of the EV market
in China is owned by BYD, And they're just starting
to export globally to Places like Australia,
Japan, Europe and Potentially very soon,
the United States. CLSA has some predictions
that by 2026 BYD will Enter the top five
automakers in the world, And this year they may
reach the top ten. BYD, short for Build Your
Dreams, was originally Started as a battery
company in 1995 by Wang Chuanfu in Shenzhen,
China. It started out in the
1990s as a manufacturer of Batteries for cell
phones, and for the first Ten years, low cost was
their magic formula. We're going to undercut
all the competition. After building a
successful business Supplying customers such
as Motorola and Nokia, it Decided to enter the auto
business. It bought Xi’an Tsinchuan
Automobile and launched Its first internal
combustion car in 2005, The F3. In 2008, it
launched the F3DM, a plug In hybrid EV. I remember driving in and
riding the earliest BYD's. They were called the F3
and the F1, inspired by Formula One racing, which
is almost comical because Their cars were these
sort of mediocre commuter Cars that were powered by
Mitsubishi engines. In 2010, it unveiled its
first fully electric Vehicle, the e6.
It was progress, but it
wasn't perfection still. Taxis would buy the
electric vehicle because They got incentives to do
so. But very few private
individuals had any Appetite for BYD cars. The company's auto
division didn't see much Growth through the 2010s. Sales increased, but only
gradually. Profits on those sales
were mediocre. In fact, in 2018 and
2019, BYD's sales year on Year were declining. Up until very recently,
it was on the fence Whether or not it was
going to make it as a car Company. However, it managed to
turn things around. In 2019, I saw some of
their new products called The Tang and the Han,
designed by German Designers, world class
designers. And the first time you
see, oh, these are Actually good looking
cars. There's potential here. In 2022, the company
stopped production of its ICE vehicles, focusing on
building battery electric And plug in hybrids. The majority of their cars
are in the mass market, so That helps with volume,
and they've also not Completely shifted into
pure electric vehicle at Once. BYD is backed by Warren
Buffett's Berkshire Hathaway and considered
entering the U.S. Market in 2008, when
Buffett acquired 10% of The company. Warren Buffett himself
said, I'm betting on the Man. I don't understand
the technology.
I'm not sure about the
China market. Will EVs take off or not? But this guy is one in 10
million. So he recognized
something special in Wang Chuanfu and it's with
that that he gave his Blessing to an
investment, about a Quarter billion dollars. A lot of the reason why he
invested was because of The battery business,
more so than the vehicle Business. And that has
grown dramatically along With their vehicle sales. BYD's stock is up over
1,400% since Buffett first Invested. Berkshire
Hathaway did pare down its Stake in the company,
selling more than 60% of Its shares since last
summer. Why would he draw down? So one is geopolitics, as
he's mentioned with Taiwan, he said, I don't
like TSMC because of the Location. Second thing
going on, Tesla ignited a Price war about one year
ago at the end of 2022, And that price war has
been ferocious. So much so that most EV
makers in China are losing Money today. There's only
Tesla, BYD, and a couple Others that are actually
able to make a profit. At the core of BYD's
winning strategy – price. Many of its vehicles
undercut the competition. In Munich just a few
months ago, they launched The Seagull, priced at,
get this, $11,500. Very competitive in the
segment of $35,000 and Under. Its expertise in
batteries, typically the Most expensive part of an
EV, has helped here as Well. BYD designs, develops,
engineers its own
Batteries at scale. So not only they have the
capability and the Capacity for their own
products, but they're also Supplying batteries
globally with plans to Build battery plants all
over the world. They are one of the top
companies in the world Building lithium iron
phosphate batteries in Particular. They cost
about 30 to 40% less per Kilowatt hour to
manufacture, and LFP Batteries are also
extremely durable. They last a long time. As a leader in battery
technology, it actually Supplies batteries to
other car makers like Tesla, Toyota and Kia. In 2020, it launched the
Blade, a lithium iron Phosphate battery that
the company touted as a Breakthrough in high
energy density with high Levels of safety. By many accounts, bYD's
Blade battery is best in Class globally right now. What they've done
essentially is to maximize The energy density, and
this is attractive to Everyone in the industry. BYD is not just in the
passenger car market, it Makes trucks, busses and
other vehicles as well. The company actually
builds and sells electric Busses in the U.S. At a factory in
Lancaster, California. They have had a big
business in the commercial Fleet vehicles including
busses in the U.S., Latin America. But its passenger cars are
what account for the Majority of its sales. The company offers
several models at a
Variety of price points. The Dynasty series
includes the Qin, with a Price starting around
$14,000 to vehicles priced All the way up to the
Tang, on the high end, Starting around $34,000. The vehicles that really
put BYD on the map for the New energy segment is the
Han. It's a sedan that they
launched in July 2020 and This car just took off. The Ocean series appeals
to younger consumers and Features the Seagull,
BYD's smallest car, with a Starting price around
$10,000, up to the Seal, a Sedan that starts around
$22,000. When they released the
Dolphin and Seal models, One of the things that I
was told was, well, we Have many different
colors. It's supposed to Appeal more to young
families and especially Women. BYD has also introduced
vehicles under luxury Subbrands Denza, Yangwang
and Fang Cheng Bao. Denza, a joint venture
with Mercedes-Benz created In 2010, introduced a few
EVs for the Chinese market Before undergoing a
restructuring in 2021. Mercedes has since
reduced its share to 10%, But BYD has continued to
develop new vehicles, Starting with the D9, a
luxury minivan. The N7, a direct
competitor to the Tesla Model Y, and the N8, a
larger SUV. Yangwang, created in
2023, targets the high end Segment with a supercar,
the U9, and a luxury SUV, The U8. Details of its
next car, the U7, recently Revealed it will have
quad electric motors with A range around 500 miles. Fang Cheng Bao, also
created in 2023, launched
Its first vehicle, the
Bao 5, in November last Year. Yangwang is definitely
BYD's effort to enter that Really luxury segment of
the market. The cars are either
extremely gigantic or They're in the sports car
category, which is very Different from BYD's
other cars. Most automakers, at some
point in their history, Try to create halo
vehicles that will reflect Well on the rest of the
brand and and create an Image for the brand. And BYD is no different. It's a sign of their
growing confidence and Say, look, we can do what
Ferrari or Lamborghini or Porsche can do. Just as well, if not
better. Being the leading electric
carmaker in China, BYD has Set its sights on
bringing its cars to other Markets. Starting around 2018,
2019, markets slowed and Margins started to drop,
and all Chinese automakers Said, uh oh, if we stay
still in our domestic Market, we're going to
drown in overcapacity and Hyper competition. And we're already seeing
that play out. It's already a major
player in Southeast Asia, Where it has 43% market
share in EVs and is Currently the top selling
EV maker in Thailand, Brazil, Colombia and
Israel. In Thailand, they were
basically non-existent in The market a year ago,
and just in the last few Months, they've become
the top selling car brand, And I believe they also
have targets to double Their sales in the
Philippines and Singapore
This year. Last year, the company
started selling in Mexico And is looking to enter
Japan. They just are launching
the Dolphin in Mexico now, Increasingly growing into
other markets in South America, where Tesla
doesn't really have as Much of a presence right
now. BYD is building up its
presence in Europe. Last year, it sold 13,000
vehicles there and now has Its own massive cargo
ship capable of carrying 7,000 vehicles. It recently delivered
3,000 cars to Germany in Its first voyage. It's pretty in line with
BYD's strategy overall to Make sure they have as
much as possible in-house. With the ship, that just
gives BYD extreme control Over costs. It's safe to say that
their number one priority Right now overseas is
Europe, because in Europe There's legislation to go
electric, there's people With money to buy
electric cars, there's Decent charging
infrastructure. The company has said it
will open its first European plant in
Hungary, but the Chinese Automaker is facing
obstacles abroad. The EU in the last couple
of months has announced They're going to be
investigating subsidies That went into the
production of Chinese made Electric vehicles. The EU Commission saying,
hey, we don't believe your Costs. We think that
you're probably dumping or Over subsidizing your
products, and that's why You're so competitive
here. In China, new energy
vehicles have received
Substantial support from
the government. Rhodium Group estimates
that BYD received Approximately $4.3
billion in state support Between 2015 and 2020. But the biggest question
of all, will BYD try to Sell its cars in the
U.S.? They're definitely
preparing for the U.S. Market, waiting for the
right timing. U.S. And Europe promise a
profitable market. They have to enter and
compete and win here to Thrive globally. Currently, tariffs make it
expensive with made in China EVs hit with a 25%
tax on top of the 2.5% Tariff imposed on
imported cars. A lot of these companies
and the investors in these Companies, which in some
cases includes various Levels of government in
China, there seems to be More of a tolerance for,
at least for the time Being, taking losses in
order to grow market Share. It recently announced it
will build a factory in Mexico, possibly to gain
a foothold in the North American market. Few people know it, but
China is the number one Supplier of cars to
Mexico already, and the Next natural step will be
for them to build Manufacturing plants in
Mexico. They're already looking
at sites, they're well Advanced in their
research, and will ship Our vehicles up through
the border into the U.S., Starting probably, their
expectations, after 2025. What is the possibility of
the Chinese getting closer And closer to our market? Within the next 5 or 6
years you will see several
Automakers likely begin
final assembly in Mexico. Why is that important?
Because of NAFTA, it Basically eliminates that
tariff. People will say,
Americans won't buy Chinese. You know, what
you ask somebody, do you Want to pay $9,000 for a
an SUV, or do you want to Pay $19,000 or $20,000
for an SUV? No contest. And that's
what we found with Everybody we've talked to
down here. U.S. Lawmakers have warned
Chinese automakers could Flood the market and be a
threat to domestic Automakers. People in D.C. definitely
have an eye on that, and You can bet that they're
talking to the Mexican Authorities. The risk is
real for the U.S. At a time when UAW has
just negotiated all time Record high wages and
perks. In Australia, Chinese
automakers aren't Restricted by tariffs,
and BYD has grown Considerably there. After entering the
country in 2022, it now Has 14% of the EV market. Tesla leads with a 53%
share, but has been Selling there since 2014. The Chinese car companies
are the most competitive Car companies in the
world. I think they will Have significant success
outside of China, Depending on what kind of
tariffs or trade barriers Are established. Frankly, I think if there
are not trade barriers Established, they will
pretty much demolish most Other car companies in
the world. They're extremely good. But with China becoming
such an automotive
Powerhouse, it may be
hard to keep its ambitions At bay. Chinese automakers have
learned very quickly how To produce really
appealing vehicles. They're more affordable,
and they're arguably in Many respects, better
vehicles. The rest of the Industry has reason to be
scared. China, today, has capacity
to deliver half of the World's demand for
vehicles. Half. And given their strength,
and their low cost, and Their increased designs
and improved quality, you Start to wonder, what is
going to stop this Juggernaut?
