Sands Capital Management, LLC - Emerging Markets Growth Composite on BYD Company Limited
Thesis
BYD is viewed as a technology-driven electric-vehicle and battery company rather than a traditional automaker competing mainly on price. Although the shares weakened, Sands sees early improvement in three potential rerating drivers: faster international volume growth, better profit per vehicle and a recovery in domestic volumes. Export mix and premiumization supported better-than-expected profit per vehicle, while international retail demand appears stronger than reported wholesale shipments suggest. BYD's in-house Xuanji A3 ADAS chip and its insurance coverage for city-level ADAS accidents reinforce the manager's view that product differentiation is improving. A recovery in these operating trends could allow the market to value BYD more like an innovative technology company.
“We see early signs of improvement across three drivers that could support a rerating: faster international volume growth, better profit per vehicle, and domestic volume recovery.”
Key risks
- Intense domestic Chinese competition
- The U.S. Department of Defense added BYD to its Section 1260H list, weighing on sentiment
- Domestic sales recovery remains only moderate