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BYD Company (one of Charlie Munger’s greatest stock picks) is dominating China’s EV market

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In 2008, BYD Company founder Wang Chuanfu did what very few have – he bedazzled Charlie Munger.

At the time, the entrepreneur had already amassed a fortune producing mobile phone batteries and was plotting a plan to conquer a new frontier – electric vehicles.

First, he needed capital, and through a mutual friend was introduced to none other than Charlie Munger.

The notoriously skeptical Munger was said to be won over by Chuanfu, almost instantly.

Munger convinced his partner Warren Buffet, and in September of 2008 it was announced that Berkshire Hathaway‘s MidAmerica Energy Holdings had acquired 10% of BYD Company for US$230m.

It was a high-conviction play by Munger, and he wasn’t afraid to speak of his confidence in Chuanfu.

“This guy (Chuanfu) is a combination of Thomas Edison and Jack Welch – something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it,” Munger told Fortune Magazine in 2009.

Related: China on track to build the world’s best cars

The 2008 deal saw Berkshire Hathaway pay HK$8 for each of the 225 million shares it acquired.

Today, BYD (HKG: 1211) trades around HK$253 per share and Berkshire Hathaway has not sold a single share.

It’s an investment that has returned Berkshire Hathaway more than 3000%, or just under US$7 billion, in 13 years.

BYD Company’s EV market domination

BYD looks set for even more growth as its new energy vehicles (NEVs) business emerges as the dominant player in the enormous Chinese market.

New data released by the China Passenger Car Association shows NEV sales are continuing to rise in China, and BYD is leading the sales race.

In September, BYD sold 70,432 passenger NEV’s, 14,426 more than Tesla – the next best manufacturer of passenger NEVs by sales – which sold 56,006 vehicles.

BYD Company Passenger NEV Sales BYD Company

The 70,432 passenger NEV’s sold in September was a monthly record for BYD.

In its interim report for the period ending 30 June 2021, BYD said its share of China’s NEV market was above 16%, rising from around 11% at the beginning of the year.

“The wave of automobile electrification continues to accelerate around the world, and the domestic brands are experiencing rapid changes and growth. Under the background of the new era, the automobile industry in China is transforming from manufactured in China to Chinese brands,’ the company said in its interim report.

“As a pioneer and leader in the new energy automobile industry, BYD adheres to the development philosophy of ‘technology-focused and innovation-oriented, and promotes the high-quality development of new energy automobile industry through its precise strategic positioning and technological innovation.”

“In the first half of 2021, with the application of the Group’s new technologies and the launch of new products, sales of new energy vehicles were hitting successive new heights.”

China’s booming EV market

While BYD is currently leading the pack, there’s certainly room for the other major players to continue to grow revenue and market share in China.

The Chinese NEV market is the largest in the world. In 2020 41% of all NEVs sold world-wide were sold in China.

This is largely due to world-leading Government policies which have been in place for a number of years to encourage Chinese residents to buy NEVs.

This is seen as a critical element in helping the Chinese Government achieve its goal of carbon neutrality by 2060.

Currently, purchases of NEVs with a range of 300-400 kilometers are eligible for a 13,000 yuan subsidy (US$2,016).

NEVs with a range of 400 kilometers or greater attract an 18,000 yuan subsidy (US$2,791).

There have also been tax waivers and a major roll-out of charging stations across the country, which have supported NEVs.

The policy measures appear to have done the job of familiarising tens of millions of motorists to NEVs and it’s likely these changing vehicle preferences will continue even after the policies have run their course.

For Berkshire Hathaway and BYD Company shareholders the outlook is bright. We should mention, along with NEVs, BYD’s handset components and batteries businesses are also delivering robust earnings.

For those betting on the growth of newer players in the Chinese NEV market, such as NIO (NYSE:NIO) and XPeng (NYSE: XPEV), the outlook is equally encouraging.

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