No. of Recommendations: 4
I would be interested in any views on how BYD manages to have a high return on equity without excessive debt.
Sounds like you have answered your own question - they don't have debt, but you said they owe money to their suppliers ("Debt is not high at all and they seem to finance themselves from suppliers"), which is better if you can swing it, and would leverage their equity.
One final thing, I read recently that legacy auto makers are in a state of shock at how cheap BYD can make their cars. Vertical integration etc. It looks to me the EU and US are keeping them out using huge tariffs. So much for free markets and open economies. BYD at the current price probably doesn’t need the West and can make plenty in China and the developing world. Any thoughts on how this tariff war plays out?
I expect there will be plenty of opportunities for them to sell inexpensive EVs to NA and Europe who desperately want more people to buy EVs. It won't happen overnight, but it will happen, our markets aren't THAT closed. And they will probably be happy to build plants in NA and Europe (Mexico, Eastern Europe, for instance) as the volume ramps.
Exciting company, I am sorry to see Berkshire has reduced the stake by 2/3 - I don't really understand why (not wanting to compete against Tesla was mentioned by Munger, but they are obviously doing just so very effectively, even if Tesla is also doing well. I wouldn't bet against BYD, and might buy some - the PE of 13 certainly has a lot of pessimism built in, probably too much!
dtb
