Is your next car going to be electric? For many of us, the answer is no.
Despite strong support from early adopters and fleet buyers, many people buying cars on a large scale still consider electric vehicles too expensive and lacking both sufficient range and charging infrastructure that would make them easy to drive.
There is increasing evidence that the growth of electric car sales is slowing rapidly. These include stories of cars parked in dealers’ forecourts, companies like GM and Ford delaying investments and reports of Volkswagen halving its order book for electric cars.
Given this pessimistic backdrop, why would investors want to buy shares of an electric car company? It doesn’t help that they don’t come cheap: Industry-leading Tesla shares trade at 62 times their estimated earnings over the next 12 months.
Yet some of the world’s best fund managers are buying — and looking beyond Tesla to find a stock market winner from the electric car industry.
Ten of these professional investors – each of the top 3 percent of investors among the 10,000 equity fund managers tracked by financial publisher Citywire – own shares in BYD, the Chinese company that has emerged as the world’s largest seller of electric vehicles. Is close to overtaking Tesla.
So does famous American investor Warren Buffett, who has backed the company since 2008.
BYD receives a top AAA rating from Citywire Elite Companies, which rates companies based on their backing by the best-performing fund managers; Tesla has been given AA rating.
While the global growth of the electric car market is faltering, BYD dominates the better-health Chinese market, thanks to generous government subsidies.
The company’s production and sales volumes have been steadily rising and BYD is now expected to deliver more electric vehicles than Tesla in the last three months of this year.
Its domestic market sales are a major contributor to that growth, but foreign sales are also increasing. Electric vehicle exports accounted for 10 percent of total deliveries in October, up from 4 percent a year ago.
The numbers are not yet at a level that would trouble existing carmakers in Europe and the US but BYD’s export pace is increasing and it is hard to ignore. Even though the global electric car market is not growing as fast as it used to, BYD has ample opportunity to gain more market share outside China.
Crucial to its appeal is its price. An entry-level Dolphin, which the company launched in the UK this year, is priced at £25,490, making it one of the cheapest electric cars in the British market.
But it is in its home market that the company is breaking new ground: its small Seagull hatchback, which has a cheaper-to-produce sodium-ion battery, first went on sale in China at a starting price of 73,800 yuan (£8,200). this year.
BYD’s low-cost vehicle range helps answer one of the major criticisms of electric cars, that they are too expensive.
Their impressive range and relatively quick recharging meanwhile counters another potential hurdle for customers switching from petrol to electric cars. BYD’s Blade battery can provide 376 miles of range, recharge from 30pc to 80pc in 26 minutes and provide 3,000 charging cycles.
The company is strengthening its presence outside China by introducing models in overseas markets as well as investing in sales and servicing branches. It plans to add 16 branches to its existing 10 in the UK, closing some of the gap between Tesla’s 37 branches.
Concerns about BYD’s ability to sell in the EU, which is investigating subsidies received by Chinese electric car companies, may be resolved by a reported plan for a manufacturing plant in Hungary. It is also not impossible for a plant in the US to benefit from domestic production incentives.
The opportunity in Western markets enhances BYD’s already attractive growth potential. Sales doubled last year, while profits on the “EBIT” (earnings before interest and tax) measure increased almost fourfold. The growth rate this year is not expected to be so explosive, although analysts are still expecting a 48 percent increase in sales and a 74 percent increase in EBIT.
The important thing is that investors are not being asked to overpay for this growth. Despite rising five-fold over the past five years, BYD shares have not been able to keep pace with its rising profits. That leaves shares trading near their lowest price-to-earnings ratio in six years, which amounts to 18 times forecast profits for the next 12 months.
For a fast-growing company that challenges Tesla for leadership of the global electric car market, this seems an exceptionally fair price to pay. Readers can invest through BYD’s “American Depositary Receipts” available from stockbrokers.
Quester says: buy
Share price at closing: $63.14
Phil Oakley is a contributing journalist Citywire Elite Companies
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