Imagine if I told you there was an electric vehicle maker that sold nearly twice as many cars as Tesla (TSLA) last quarter, saw its revenues double last year, and yet its stock is four times cheaper than Tesla’s on a price-to-earnings basis. You’d probably be interested in this surging electric vehicle stock. The catch? It’s actually a Chinese EV stock, at a time when China’s economy is struggling and trust in Chinese equities among Westerners is at a nadir.
That’s why shares of BYD (BYDDY) are up a mere 12% this year despite everything I just mentioned.
The Tesla of China
Short for “Build Your Dreams,” BYD has quickly become China’s version of Tesla. In March 2022, the company stopped making combustion engine vehicles to go full electric, or at least mostly electric – it now produces both battery electric vehicles (BEVs) and hybrids. The shift in focus paid immediate dividends in a country that loves the electric vehicle: BYD’s revenues leapt to $63.1 billion in 2022 from $33.5 billion in 2021 and $22.7 billion in 2020. This year, BYD has grown revenues by double digits every quarter and is likely to exceed its stated goal of selling more than 3 million electric vehicles.
What makes BYD unique is the wide array of price points on its vehicles. The company just released the “Seagull,” the cheapest electric vehicle in existence at a starting price of a mere $10,200 (or 73,000 yuan). It also makes the most expensive mass-produced car in China, the Yangwang U8, an off-road hybrid that costs $159,000. But neither of those vehicles are BYD’s top sellers; those would be the Atto 3/Yuan Plus ($48,500) and the Dolphin ($17,300 - $19,000 range).
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BYD’s “something for everybody” identity – with cars for consumers of all income ranges – has Elon Musk spooked. It’s a big reason why Musk and Tesla have repeatedly slashed prices on some of their top models (Model 3 and Y) this year, to better compete with BYD not only in China – where BYD is far and away the largest automaker – but also globally, as BYD is just scratching the surface of its worldwide expansion. It already has a strong foothold in Southeast Asia, where it has shot past Tesla and accounted for more than a quarter of total electric vehicle sales there in the most recent quarter. BYD is also gaining traction in Japan – where the U8 made its Japanese debut at the Japan Mobility Show in October – Brazil, Israel, New Zealand, Sweden – where the Atto 3 was the top-selling electric vehicle in July – and is expanding into India and other parts of Europe.
Notably, BYD does not yet sell cars in the U.S., and likely won’t for some time in part due to current frigid relations between the U.S. and China. But even without an American presence, BYD sold roughly the same number of BEVs worldwide in the third quarter as Tesla (431,603 to Tesla’s 435,059) and is likely to top Tesla as the global electric vehicle leader as early as the current (fourth) quarter.
Chinese EV Stock Status Holding BYD Back
And yet … BYD stock has been a bit “meh.” It’s down 25% in the last two years and hasn’t made a major move since rocketing from 11 per share to as high as 68 per share from June 2020 to February 2021. BYDDY shares reached as high as 82 in July 2022 but were promptly sliced nearly in half by year’s end. The stock is up 12% year to date, but its tendency for fits and starts has been maddening, with investors seemingly selling off after every big move, including an 18% faceplant in the second half of November.
The reason BYDDY (the ticker symbol for its American Depositary Receipt, or ADR) keeps having the football pulled away like it’s Charlie Brown is mostly due to China. China’s economic re-awakening in the wake of the country finally lifting its draconian zero-Covid policies hasn’t been the countrywide spending spree economists had expected, but its 4.9% GDP growth in the third quarter outpaced analyst estimates of 4.4% and is up 5.2% through the first nine months of the year. Forecasts call for GDP growth north of 4% in each of the next three years, which, while not the 7%-plus growth China enjoyed in its pre-Covid days, is still more than double the 1.5-2% GDP growth expected from the U.S. economy through 2026.
And besides, China’s more-sluggish-than-normal growth certainly hasn’t slowed BYD’s sales. If anything, the company’s stark outperformance at a time of relative Chinese austerity makes it more impressive and offers a glimpse of what could be as Chinese consumers begin to open their wallets more.
If China’s recovery picks up steam, U.S. investors will likely be more willing to take on the “risk” of snatching up shares of a Chinese EV stock. And with that stock currently trading at less than 15 times forward earnings estimates – and exactly a third off its 2022 highs – this is an ideal time to buy.
For those reasons, BYDDY is my top stock pick for 2024.
I recommended BYDDY months ago to readers of my Cabot Stock of the Week advisory, which every Monday recommends a new stock from among seven of Cabot’s top investment newsletter portfolios. To learn the names of the other 20-plus stocks I’m currently recommending (average year-to-date gain: 24.7%), click here.
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