The stock has rallied significantly from where it was a year ago. I had looked at the stock back in February of 2024 when it was trading at around HKD 200, but dismissed it as I was afraid of the competition (explanation further in the article). The stock proved me wrong, and it’s time to revisit the case.
BYD is primarily a Chinese auto manufacturer focused on battery electric vehicles and plug-in hybrid electric vehicles (c. 80% of revenues). The company also has a 66% stake in BYD Electronic which manufactures handset components and assembles mobile phones. These operations are consolidated into the accounts, and the segment represents c. 20% of revenues.
Electronic was a subsidiary that was spun off in a 2007 IPO. Both companies are listed in Hong Kong (BYD: 1211, Electronics: 0285) while their reporting currency is the Chinese Yuan. BYD Semiconductor is another subsidiary (established 2020) where there were plans to do an IPO, but it was cancelled in 2022.
Until FY21, BYD broke out its Rechargeable Battery and Photovoltaic business. From FY22 onwards, this is included in auto revenues. BYD also manufactured traditional ICE cars but ceased production in May ‘22.
Market Info
Ticker SEHK:1211
Stock Price (HKD): 371.40
52-W High (March 20, 2025): HKD 426.60
52-W Low (August 08, 2024): HKD 202.80
5 Year Beta: 0.46
Avg Volume (3-month, millions): 16.4
Avg Volume (USD, millions): $783.1
Shares outstanding (basic): 3,035
Country of Incorporation: China
Trading Currency: HKD
Filing Currency: CNY
Enterprise Value
(Figures from left to right are in USD, HKD, and CNY)
Market Cap (millions): $146,738 | HKD 1,138,192 | ¥1,070,524
Plus: Total Debt $5,668 | HKD 41,128 | ¥41,128
of which Leases $1,627 | HKD 11,876 | ¥11,876
Plus: Minority Interest $1,764 | HKD 12,800 | ¥12,800
Less: Cash and ST Investments -$21,138 | -153,391 HKD | -¥153,391
EV (USD, millions) $133,031 | HKD 1,038,729 | ¥971,061
Key Valuation Metrics
P/E forward: 19x
EV/EBITDA forward: 7.5x
Dividend Yield: 1.1%
Key Persons
Vice President: Luo, Zhong Liang
Executive Chairman, President & CEO: Wang, Chuan-Fu
Senior VP & CFO: Zhou, Ya-Lin
Board of Directors, Chairman: Wang, Chuan-Fu
Top 5 Institutional Holders
BlackRock: 3%
Vanguard: 2%
Baillie Gifford: 1%
FMR: 1%
Huatai-PineBridge: 1%
Top 5 Insiders’ Holdings
Wang, Chuan-Fu: 17%
Lv, Xiang-Yang: 8% + 5% (Youngy Investment Holding)
Xia, Zuo-Quan: 3%
Wang, Nian-Qiang: 1%
Li, Ke: 0%
So the 2 founders (Wang and Lv) control c. 30% of the company. Berkshire Hathaway owns c. 2% of the company. Berkshire used to own 4x as many shares, but has been reducing the position since 2022. See below. It was Charlie Munger who showed it to Buffett. Munger was introduced to the stock by Li Lu, the founder of Himalaya Capital. He owned the stock for years before Berkshire took a position at HKD 8 in 2008.
Stock Performance
The stock has been on a tear, yet still underperforming EPS growth! Over the past 5 years, it has recorded a 50% CAGR while longer-term holders (10 years) have seen a 23% CAGR. EPS growth has been impressive.
Business Moat
A good company has a moat. Possible advantages that BYD has are:
As the number 1 in its market in China, the company has economies of scale, resulting in low-cost production.
The company started as a battery company. This experience in batteries is important as it is a major cost in battery electric vehicles. The company currently supplies other OEMs, including Tesla.
Vertical integration with c. 75% of the car produced in-house; battery, almost all chips used, and even owns mines.
As an investor, I demand evidence. Lots of people and companies claim to have a moat. Evidence of a moat is high returns on equity and capital. If you are producing below your cost of capital, then you are just destroying value, and it is a reason why many companies have lower multiples.
As you see below, the returns have improved significantly since 2022. This was one of the reasons I was not so keen on BYD in the past. At the time, I wondered if the good returns would continue or if BYD would return to the performance of the past.
Types of Renewable Energy Vehicles
A quick recap of all the jargon as it’s necessary to follow along.
Battery Electric Vehicles (BEVs): Fully electric, powered solely by rechargeable batteries.
Plug-in Hybrid Electric Vehicles (PHEVs): Combines an internal combustion engine (ICE) with a battery-powered electric motor. The battery is charged from the grid and can run on electric-only mode.
Hybrid Electric Vehicles (HEVs): Not included in Chinese “New Energy Vehicle” stats, similar to a PHEV as it uses both an ICE and an electric motor, but the electric motor’s battery is charged through regenerative braking and the engine (not by plugging in).
Fuel Cell Electric Vehicles (FCEVs): Uses hydrogen that is stored in high-pressure tanks within the vehicle. The hydrogen passes through a fuel cell stack, where it reacts with oxygen from the air. This reaction generates electricity, which powers the vehicle’s electric motor. The only emission is water vapor.
Chinese Market: New Energy Vehicles
The other thing I worried about was the market share. Below is a chart I posted in my personal notes on the company. This chart refers to sales in China. Auto Sales are in blue with the numbers on the left. In orange is the “New Energy Vehicles” (NEV) as a percentage of the total. We see this rising significantly from 19% to 30%. And in green is BYD market share, which appeared to be dropping from 34% (Jan ‘23) to 25% (Feb ‘24). So, with a lack of strong ROIC history and what looked like a dropping market share, I dismissed the stock.
Now let’s take a look at an updated chart! In yellow is the new data. NEVs have expanded to a 42% share of total auto sales. BYD remained stable at 23%, however, BYD’s share appears to naturally fluctuate as it reached 35% in August ‘24. I’m not an auto expert, so my fears may have been from not understanding this volatility.
New Energy Vehicles include battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell vehicles. As we see from the chart below, BEVs have been steadily losing market share in China. BEVs have dropped to as low as 56% from 84% in December ‘21 before rebounding slightly to 65% currently. PHEVs have been on a steady rise while fuel-cell vehicles are irrelevant.
BYD produces and sells both BEVs and PHEVs. In 2024, 58% of sales were from PHEVs compared to 48% in 2023.
Chinese Automanufacturers
The China Passenger Car Association (CPCA) publishes information on the top local manufacturers by units every month. I collected data from 1/2023 to 3/2025. The six companies in the chart below have consistently ranked in the top 10 for the last seven quarters. BYD’s share of the top 6 has been pretty consistent. If we look at only the top 5 (not shown) this was 30% in 1Q25 as well as 30% in 1Q23. Note that the chart reads from right to left.
18 companies have been within the top 10 ranking since 1Q23. These are: BYD, Changan Auto, Geely Auto, FAW-VW, SAIC-VW, Chery Auto, SAIC-GM Wuling, GAC Toyota, BMW Brilliance, Dongfeng Nissan, Dongfeng Honda, Tesla, Beijing Benz Automotive, FAW Toyota, Li Auto, Great Wall, GAC Honda, SAIC GM.
There are several JVs, as you see. From this group, the publicly listed companies are BYD, Changan, Geely, SAIC, GAC, BAIC, Dongfeng, FAW, Li Auto, Brilliance, and Great Wall. Typically, the Chinese companies are either founder majority-controlled and led, or have government involvement.
Profitability
The electronics segment is slowing the company down, as not only is growth higher at the auto division, but so is profitability. On its own BYD Auto has c. 23% gross margin versus c. 19% for the entire consolidated company.
Below is a chart that includes listed major Chinese competitors (yellow) as well as well-known auto names for their last fiscal year.
Compared to the average gross margin of the group, BYD Auto has performed better most of the time. It should be noted BYD went all-in on NEVs in 2022.
The same companies are shown below with EBIT margin.
Again, compared to the average EBIT margin of the group, BYD Auto has performed better most of the time.
Hybrid Electric Threat
There is a lot of talk on BEV and PHEV, but investors could be missing the disruption occurring with Hybrid Electric Vehicles. The largest player, Toyota, saw sales of HEVs grow 32%. The company’s total electric sales went to 37% from 30% in ‘23.
Per the European Automobile Manufacturers’ Association, HEVs grew from 5.7% of new car sales to 25.8% in 2023. BEVs grew from 1.9% to 14.6% and PHEVs from 1.1% to 7.7%. Combined BEV and PHEV are still less than HEVs.
In 1Q25, HEVs were 35.5%, BEVs 15.2%, and PHEVs 7.6%, while in 1Q24, HEVs were 28.9%, BEVs 12%, and PHEVs 7.4%. So we see a continuation of this trend
Argonne National Laboratory has monthly sales updates on US light-duty vehicles. Below we see the composition for BEVs, PHEVs, HEVs. HEVs’ share went from 9% to 12% while BEVs only went from 7% to 8%.
In 1Q25, HEVs grew 47% yoy, BEVs 19% yoy, and PHEVs declined by -7%.
Recently, we purchased a Toyota HEV (no subsidies), and I witnessed first hand the significant reduction in gas consumption. So I wonder if we globally saw a reduction in gas consumption due to HEVs, how urgent would the transition to full electric be? Of course, I’m just speculating here, but my point is that the adoption of BEVs may be slower than expected. There are other factors such as government policies that are beyond the scope of this piece. Those may end up being the determining factor…
Comparison: Multiples, Returns, Growth
From a P/E perspective, BYD is trading at a premium to its competitors. But so are other Chinese autos. Tesla is obviously off the charts.
Contrary to P/E, the EV/EBITDA looks better and is in line with the market, while some of the other Chinese autos trade at a discount.
Market consensus is for EPS to compound at a 30% CAGR for the next 2 years. Significantly higher than the competition but in line with positive expectations for Chinese autos.
To get a clean picture of growth, we must look at the top-line expected growth. Almost all the Chinese autos here are expected to grow at a double-digit CAGR.
BYD has the highest ROE and is followed by Great Wall and Geely Auto.
One thing that pops out from this analysis is the question of specific company versus basket. Overseas sales are still only 10% of BYD (up from 8% in 2023), so the company has been driven by local sales. These local sales have been driven by a wider adoption of NEVs in China. So, instead of BYD, an investor should consider whether they will be better served by a basket. Food for thought.
Forecasts and DCF Valuation
Consensus estimates for revenue growth for the next three years are 26%, 17%, and 14%, respectively. I then fade growth downwards: 12%, 10%, 8%, 6%, 4%. Operating margin is expected to expand to 7.2% by FY27, however, after that I’ve assumed 6%, which is in-line with both 2024 and the wider auto industry.
CAPEX is expected to come down in the next few years, and I question how realistic this is. But I haven’t spent enough time on BYD to make an educated guess.
Another problem is non-cash working capital. If we assume a similar percentage as 2024, then there is a huge inflow that adds significant value to the company, as shown below.
Eliminating this benefit reduces the value from ¥480 to ¥386 (or HKD 412).
If we keep the benefit but increase our WACC to 10% then the value again drops. This time to ¥406 (or HKD 433).
If we eliminate both the NWC benefit and increase our WACC to 10%, then the resulting intrinsic value is ¥315 (or HKD 336).
Considering the China risk, 10% may be considered low. If we keep the NWC benefit but increase the WACC to 12% then the intrinsic value is ¥310.
So is this a no-brainer? I don’t think so, and perhaps I’m wrong again! But that’s ok. There is always another stock. For now, I’m keeping this on my watchlist. I’ll come back when I have some more thoughts. Let me know what you think in the comments.
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