The car company BYD last year sold more vehicles than Tesla, and its sales continue to power ahead, both in China and around the world. The company has excelled in the two areas that made Tesla so strong—batteries and car technology—and it has become overwhelmingly dominant in the China market over the past couple of years to the detriment of VW and other formerly gorilla-like brands. But strangely, BYD’s market capitalization, that is the value placed upon the company by the markets, is still dramatically lower than that of Tesla. BYD, which is listed on the Hongkong and Shenzhen exchanges, has a market value of around $100 billion, while Tesla has a market cap of around $650 billion. This is dramatically lower than Tesla‘s historic high, but still way way above that of BYD. So does this mean that BYD is a major buy? Because it is a reasonable position to take that BYD is likely to strengthen its position in the global markets in the years ahead, and become bigger than GM and VW, based upon its EV capabilities, the provision of functionally fine four wheeled vehicles, operating on battery power with the help of hugely convenient tech.
There are other factors influencing the relative market cap of these two companies, of course, including the charisma of Tesla’s owner, Elon Musk. Elon was in Shanghai this week, and visited his factory which has become an important part of Tesla’s business, which probably makes Those in Command happy because it provides leverage. Elon‘s charisma has become somewhat tarnished over the past year, particularly with the perception of how he has handled Twitter since he bought it, and there are those who question his fundamental attitude as to how the world is run.
Another factor is the undeniable growing negativity which attaches to China in many parts of the world, but most particularly the West. BYD is a Chinese company, but it is not a state-owned enterprise, it is a private company based in Shenzhen, with a very healthy entrepreneurial spirit as its foundation. Warren Buffett was one of the early investors and Warren has made a huge amount of money as BYD has moved from being totally insignificant to being a monster auto producer in just a few years. But strangely, Warren has been selling BYD shares over the past few months, even as BYD’s position in the market is strengthening. Does he know something we don’t? And is BYD potentially exposed to market access problems as a result of association with the general negative perception of China, both in government and public opinion terms in the west?
One element to consider is that of critical national infrastructure. This used to mean electrical power grids, reservoirs of drinking water and transport networks, but with the Internet of Things (IoT) increasingly becoming a big deal, some are asking the question, whether or not the myriad items that are linked into the IoT today also represent a part of critical national infrastructure, represented by the acronym CNI. This leads to the question of where do the key components of the IoT linkage of everything from refrigerators to cars to smart meters come from. One of the key providers globally is a China company called Quectel, referred to by some as the new Huawei—and we know how their infrastructure involvement is going.
So what is the take away from all this? And the answer is that the world is getting really really complicated.
Have a great weekend.