Is Tesla a bubble stock?
A recent article at another investment blog drew disparaging technical and fundamental parallels between Tesla and a small Chinese car & battery outfit, BYD (BYDDF), whose stock soared 10X in 2009 after Warren Buffett bought 10% of the company. When management failed to deliver on its promises, shares of BYD fell back to Earth like Icarus unplugged.
Shares of Tesla have risen more than 1000% since the IPO and have dropped 20% over the last month as the Nasdaq 100 corrects its effervescent rise. How skeptical should a TSLA investor be?
There are some superficial correspondences between Tesla and BYDDF.
• BYD was founded by an innovative young engineer and entrepreneur, Wang Chuan-Fu, who became a billionaire in his 30’s.
• Like Elon Musk, Wang’s businesses include high tech batteries, electric cars & solar energy.
However, the parallels then diverge.
• BYD failed to execute on its EV dreams despite an influx of cash and a PR windfall.
• Corporate culture and management expertise differ markedly between the two companies.
• With respect to his engineering and entrepreneurial skills, Wang does stand out among Chinese CEOs, but a further comparison with Elon Musk is misleading.
Background on BYD (HK.1211)
BYD was founded in 1995 by Wang Chuan-Fu, whose personal mission was to make a cheaper cell phone battery that would successfully compete with imported Japanese models. Wang was one of the first Chinese entrepreneurs to utilize dirt-cheap migrant labor for large scale technology manufacturing. In less than 10 years, B Y D was able to capture over 50% of the international market for rechargeable batteries due to pricing advantages, which made Wang a billionaire.
In 2003, Wang took a small government-owned car company private and successfully applied the same business model, producing high volume gasoline-powered vehicles at a low price with cheap labor.
The Elusive EV Dream
BYD stands for “Build Your Dreams” and Wang has been dreaming about electric vehicles for many years. Buffett’s 2008 endorsement of B Y D as an emerging electric vehicle titan jolted investors into a buying frenzy. The BYDDF bubble reached its zenith shortly after Charlie Munger (Buffett’s #2) gushed over Wang in an interview with Fortune magazine, describing him as the Thomas Edison + Jack Welch of China.
Unfortunately, the lauded chemical engineer had difficulty designing and manufacturing a battery-powered vehicle that anyone wanted. The flagship “e6” model that was supposed to launch BYD into a dominant position as a global green carmaker sold just 1700 units in 2012 and even fewer in 2013.
Sorry, Warren
Looking beyond the few superficial parallels, the differences between BYD and Tesla Motors are far more relevant. Tesla’s engineering skill, product quality and management expertise far out-class that of BYD, suggesting that a comparison between the stock prices is meaningless, if not misleading.
Moreover, in an ironic twist of fate, recent developments suggest that Tesla is likely to become the most successful electric vehicle company in China.
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FD: Long TSLA
