Is your next car going to be electric? For many of us, the answer is no.
Despite strong take-up from early adopters and fleet buyers, many of the mass car-buying public still see electric vehicles as too expensive and lacking in both sufficient range and the charging infrastructure that would make them easy to run.
Evidence is piling up that the growth of electric car sales is slowing rapidly. This ranges from stories of cars sitting on dealers’ forecourts, companies such as GM and Ford delaying investments and Volkswagen reporting a halving of its order book for electric cars.
Given this pessimistic backdrop, why would investors want to buy the shares of an electric car company? It doesn’t help that they don’t come cheap: shares in industry leader Tesla trade at 62 times their forecast earnings over the next 12 months.
Yet some of the world’s best fund managers are buying – and looking beyond Tesla to find the stock market winner from the electric car industry.
Ten of these professional investors – each among the top-performing 3pc of the 10,000 equity fund managers tracked by the financial publisher Citywire – own shares in BYD, the Chinese company that is close to overtaking Tesla as the world’s largest seller of electric vehicles.
So too does the legendary American investor Warren Buffett, who has backed the company since 2008.
BYD receives a top AAA rating from Citywire Elite Companies, which rates companies on the basis of their backing by the best-performing fund managers; Tesla is rated AA.
While global growth of the electric car market is stuttering, BYD continues to dominate a Chinese market that is in better health, thanks in part to generous government subsidies.
The company’s production and sales volumes continue to soar and BYD is now expected to deliver more electric vehicles than Tesla in the last three months of this year.
Sales to its domestic market account for the bulk of that growth, but overseas sales are rising too. Electric vehicle exports accounted for 10pc of total deliveries in October, up from 4pc a year ago.
The numbers are not yet at levels that will trouble incumbent carmakers in Europe and America but BYD’s export momentum is building and hard to ignore. Even if the global electric car market isn’t growing as quickly as it once was, BYD has ample opportunity to capture more market share outside China.
Crucial to its appeal is its pricing. An entry-level Dolphin, which the company launched in Britain this year, costs £25,490, which puts it among the cheapest electric cars on the British market.
But it is in its domestic market that the company is breaking new ground: its small Seagull hatchback, which houses a cheaper-to-produce sodium-ion battery, went on sale in China at a starting price of 73,800 yuan (£8,200) earlier this year.
BYD’s lower-cost vehicle range helps to answer one of the major criticisms of electric cars, that they are too expensive.
Their impressive ranges and relatively quick recharging meanwhile counter another potential barrier to customers switching from petrol to electric cars. BYD’s Blade battery can offer a range of 376 miles, recharge from 30pc to 80pc in 26 minutes and deliver 3,000 charging cycles.
The company is cementing its presence outside China by investing in sales and servicing branches alongside the rollout of models to overseas markets. In Britain it plans to add 16 branches to its existing 10, which would close some of the gap to Tesla’s 37.
Concerns about BYD’s ability to sell in the European Union, which is investigating the subsidies received by Chinese electric car companies, could be solved by a reported plan for a manufacturing plant in Hungary. A plant in America to benefit from domestic production incentives is not impossible either.
The opportunity in Western markets adds to BYD’s already attractive growth potential. Sales doubled last year, while profits were up nearly fourfold on the “Ebit” (earnings before interest and tax) measure. Growth isn’t expected to be quite as explosive this year, although analysts are still pencilling in a 48pc rise in sales and a 74pc increase in Ebit.
Crucially, investors are not being asked to overpay for this growth. Even after their fivefold rise over the past five years, BYD’s shares haven’t kept pace with its surging profits. That has led the shares to trade at close to their lowest price-to-earnings ratio in six years, at 18 times forecast profits for the next 12 months.
For a fast-growing company that challenges Tesla for leadership of the global electric car market, that seems an exceptionally reasonable price to pay. Readers can invest via BYD’s “American depositary receipts” available from stockbrokers.
Questor says: buy
Share price at close: $63.14
Phil Oakley is a contributing journalist for Citywire Elite Companies
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