No. of Recommendations: 4
I enjoyed your post EVBigMacMeal. There is without question a lot of anti-China hysteria and that is effecting the valuation multiples. But it doesn't have much effect on the businesses themselves, which over the long term is what matters. Even if Chinese companies trade perpetually at lower multiples, and you buy in at the lower multiple and sell at the lower multiple, your return is actually higher than buying in at a high multiple and selling at a high multiple (owing to the dividends lower along the way, and return on equity lower when expanding or buying competitors). So the transition to lower valuations has lead speculators to lose money, for long term investors I don't see the problem.
Forbes recently published some fear that BYD are eating up Tesla's lunch:
https://www.forbes.com/sites/arielcohen/2024/05/01...China, once a premier market for Musk, is slipping away. BYD is eating Tesla’s lunch, as the American EV pioneer’s sales fell by 4% in the Chinese market this past quarter, while homegrown EV makers saw a 15% gain. Much of this expansion came at the expense of Tesla ... Adding to this grim picture is China's firm grip on the global critical mineral supply. As of 2019, it controlled 58% of global lithium processing capacity, one of the vital inputs in EVs. While efforts are underway to chip away at this commanding lead, Tesla is unlikely to benefit, as its dependence on China is far too entrenched. In 2023 alone, over 40 % of the raw materials necessary to build Tesla batteries came from China.As for the large manufacturers such as Toyota, I don't understand how but BYD are expanding their production at a greatly larger pace, and they are not even issuing shares to do this and are financially strong. Maybe it is as simple as the Chinese just being smarter than, for working harder, than us Westerners?
You also write:
There appears to be some irony in the state support argument against BYD and China, from nations that seem to think their best defensive is protective tariffs. Free markets? Isn’t like sending mummy into complain to the teacher that little Jonny came in bottom of the class because the top kid worked harder? And making unsubstantiated claims of extra tuition from the class teacher and unfair marking.The double standards are even infuriating. We are lecturing other countries about free markets all the time, let alone lecturing them about not being democratic. But it looks like the opposite to me. As for democracy - if you poll our population an ask what policies we support, then look at what policies we actually execute, check the correlation - it isn't that high. Do the same in China and, it isn't perfect, but you surprisingly find higher correlation with what the public would like and what the country is actually doing. They have process of party representatives (in huge numbers spread over the whole country) visiting their own nearby villages all over China and asking them to report problems 'on the ground', which are sent up the chain to find solutions. That kind of communication with the public is so far from our reality that we don't even imagine it as possible. As for trade - we are the county imposing all the trade restrictions, and everyone else is just trying to trade openly but having a hard time because all our sanctions and market controls to try to give us an unfair advantage.
