Set for an overtake?

BYD has certainly been burning rubber this year. It has grown nearly 50% since the turn of the new year as it innovates and captures new markets at pace.

Source: Google Finance

BYD has already rocked the auto sector twice this year, and it isn’t showing signs of stopping.

In February, they unveiled their ‘God’s Eye’ autonomous driving system that it plans to make freely available to its entire model line-up, down to their cheapest vehicles.

The driving system contained features typically only found in luxury electric vehicles such as remote parking and autonomous overtaking. 

Lu Daokuan, an S&P Global analyst, observed that this announcement makes BYD the only company offering this technology at this price point. 

This was followed up by an announcement this week of BYD’s new ultrafast charging system capable of adding 400 km of range in just 5 minutes.

This is yet another technology where rivals find themselves lagging behind. Currently, Teslas can only charge at just above a quarter of the pace.

It isn’t just BYD’s innovations that have opened the floodgates for investors. It also seems to be shaping up as one of China’s most investor-friendly companies.

Since early on in BYD’s journey it has been backed by US investing legends Charlie Munger and Warren Buffet on behalf of Berkshire Hathaway. 

Munger took the lead on the project, holding an 8% stake through Berkshire as early as 2008. This has certainly helped bridge the gap between US investors and the Chinese company, opening new opportunities for BYD to access capital. 

This is a different story to how most Chinese companies are treated by international investors, which remain significantly undervalued compared to their US counterparts due to a combination of geopolitical fears, Chinese shareholder unfriendliness and the longstanding idea of American exceptionalism. 

Despite the fact that there have been some examples of China involving itself with BYD’s operations, such as the recent approval delay of a proposed Mexico plant, BYD generally boasts a better investor sentiment than other Chinese counterparts, especially since Berkshire’s involvement.

Meanwhile, Tesla investors slam on the breaks as Tesla sheds almost half of its value.

Source: Google Finance

Elon Musk’s (and subsequently Tesla’s) reputation has suffered due to his recently developed political role.

Musk’s controversial work under the Department of Government Efficiency has prompted widespread backlash recently culminating in violent protests directed at Tesla dealerships and vehicles, labelled by Donald Trump as ‘domestic terrorism’.

His political role has also taken away a significant amount of time he would have otherwise spent running Tesla. 

The CEO has even admitted himself in a recent interview that balancing his extensive role within the Trump administration with his multiple business ventures is a ‘great difficulty’.

This has manifested itself in its almost $2 billion underperformance in revenue last quarter. 

This is made worse by the fact that although last quarter’s performance represents Musk’s distraction by other business ventures, these figures are yet to account for his political role and recent Tesla protests, the impacts of which should be at least partially visible within this year’s Q1 report.

Furthering woes can be found within the increasing perception of Tesla as extraordinary overvalued. This is hitting institutional investors in particular, with FT’s ‘Unhedged’ going as far as saying that some deem Tesla entirely ‘uninvestable’.

John Foley, of the FT’s LEX, valued Tesla’s car business at $240 billion based on a ‘generous estimate’, which is still only a fraction of Tesla’s market cap.

The issue stems from Tesla not being valued like a car company at all, but instead their value hangs on distant promises of self-driving taxis and humanoid robots.

John Foley described this as ‘an investment in Musk’s imagination’. 

Despite the many skeptics of Musk’s projections that taxis and robots are a multi-trillion dollar investment for Tesla in the long-run, stock-owners have been buying into the ‘imagination investment’ for years, keeping Tesla’s value inflated. Although now, we are finally starting to see that unwind.

Nevertheless, Tesla remains a strong company. Overvalued? definitely. Losing ground? Sure. But still a strong company with significant market share in key regions such as the US. 

If Tesla wants to retain that value and compete with the innovation pace set by BYD, they might need a CEO who is full time - not one running AI, aerospace, broadband and social media companies alongside a politically controversial government department.