Should you invest in BYD – Strategy Skepticism vs China's Green Ambitions

BYD Co. is China’s biggest producer of Electric Vehicles and Lithium Ion batteries.The Company was made famous when Warren Buffet bought a 10% stake in the company,one of his biggest Foreign Investments.Since then the Stock Price has multiplied as this Chinese Automajor expands into allied Energy Storage Sectors.While I don’t think Lithium Shortage has a big probability, other automakers like Toyota has bought stakes in Chilean mines.So it makes sense for BYD to secure this critical raw material for its Energy Storage and EV plans as well.The company has been selling first mass produced plug-in hybrid compact sedan F3DM for around $22,000 since 2008 and is Second Largest producer of batteries for laptops,EVs,cellphones etc.So this makes it a big consumer of Lithium whose prices have increased manifold in the last decade.Note China has a large unknown reserve of Lithium most of it in Tibet.It makes sense for a Chinese company to use its local advantage to buy into a critical mineral early.BYD has a JV with Daimler to producer EVs and has made big plans for e6 which would target developed markets in the West

China’s BYD buys stake in Tibetan lithium miner – Yahoo

Chinese battery and autos maker BYD Co. said Friday it has agreed to buy an 18 percent stake in a Tibetan-based lithium and boron miner, moving to secure a strategically vital asset for its future growth.

BYD will pay 201.2 million yuan ($30 million) for its stake in Tibet Shigatse Zhabuye Lithium High-Tech Co., with Tibet Jinhao Investment Co. taking a 4 percent stake and BYD 18 percent, BYD said in a statement to the Hong Kong Stock Exchange.

BYD Expanding into the Grid Storage Market

BYD is expanding into the Grid Energy Storage Market signing an agreement with a Los Angeles utility to build a 5-10 MW Lithium Battery Energy Storage Facility.Note California become the first government in the world to mandate the usage of Energy Storage by Utilities.LADWP had earlier signed a deal with BYD to develop a network of EV charging stations as BYD prepares to launch the e6 Electric Vehicle in the US.

BYD to provide energy storage solution for LA – Cnet

Under the agreement, the Warren Buffet-backed company will develop a 5- to 10-megawatt power storage unit for the LADWP that will be housed at the utility’s wind power facility in the Tehachapi mountains.

BYD  has invested heavily into Solar Energy as well

China has become the dominant leader in Solar Manufacturing from being an nobody in a short span of  5 years.Chinese producers are going to produce about 60% of the global supply this year led by companies like Solarfun,Trina Solar,Yingli Green and Suntech.BYD too has decided to throw its hat into the ring with a big bang investment.Though the success of the strategy remains to be seen,it shows BYD intent to become an overall Green Leader in China.There remain little details about the $3.3 Billion Solar Investment over 5 years for which it has already gotten the financing.Solar Energy has little benefit from BYD’s other businesses.It might make sense to abandon this solar strategy.

China’s BYD to invest $3.3 billion in solar battery plant – Reuters

Chinese car and battery maker BYD Co Ltd, 10 percent owned by U.S. billionaire Warren Buffett’s Berkshire Hathaway, will invest 22.5 billion yuan ($3.30 billion) over five years to build China’s largest solar power battery plant, a report said on Saturday.The plant will have capacity to produce a total of 5,000 megawatts of batteries, the report said.In December, BYD received 15 billion yuan in credit from the Bank of China.

Should you invest in BYD – Strategy Skepticism vs China’s Green Ambitions

BYD has fallen almost 35% this year heavily underperforming the market as sales growth has slowed substantially.After a 140% growth in Auto Sales last year,this year the sales growth will go down to 30% as the company has reduced sales target to 600,000 from 800,000 earlier.Chinese auto sales have fallen and BYD  has been specially affected with its workhorse F3 Model declining in popularity.The company delivered a good first half with $100 million in 2Q profits.However the company is still quite expensive at $15 Billion Market Cap which would give it a P/E of around 38x.Also the company’s strategy to enter solar energy does not make sense.However BYD is a good story for the future.China has  a new Green Policy to create National Champions in the EV and Battery Industry.BYD is a perfect candidate with its strengths in both areas.While its execution in the EV sector is yet to give results,it is already planning into the future getting into the Grid Storage Sectors.I would not put money presently but would wait for a better entry point in the future.