BYD

BYD is the largest electric vehicle manufacturer in China. The EV industry has interested investors since at least the early 2000s, with periods of both hype and pessimism, and there are now numerous entrants with different approaches.

BYD's approach is blunt: it is a cost machine. Its founder and operator, Wang Chuanfu, lives and breathes engineering and has built the business around the brutal vertical integration of the entire EV bill of materials. His goal is to master the efficient manufacturing of not just the EV itself, but also all the components that go into it. For BYD, "owning the stack" is a strategy, not a slogan.

The single largest cost driver for any EV is the battery. This is where Wang began BYD, and where BYD's enduring advantage begins. His training in electrical engineering and materials science gave him a deep grasp of battery chemistry and the practicalities of large-scale production. Today, BYD produces batteries at roughly half the cost of Tesla's and is the lowest cost among all global EV manufacturers.

Wang's whole playbook is speed and control. Batteries account for so much of the income statement of an EV maker. From there, the company radiates its cost discipline outward: motors, inverters, power electronics, and other parts that most automakers outsource are designed and built in-house. BYD's vertical integration reduces chokepoints and allows faster iteration. It is not glamorous, but it is incredibly durable. Over time, BYD's constant ability to lower the costs of EV manufacturing will keep translating into market share gains outside of China.

"This guy, who is a really terrific engineer, started the business from just a $300,000 loan with no additional money until the IPO… He created a company with $8 billion in revenue, 170,000 employees and tens of thousands of engineers. … Their engineering culture consistently demonstrates its ability to tackle big, difficult problems."


- Li Lu speaking on Wang Chuanfu in a Graham & Doddsville Interview in the Spring of 2013

From Lithium mining to vehicle manufacturing and even monorail systems. BYD operates in a structurally growing market with strong regulatory tailwinds. BYD is unusual among global automakers in its range of products. At one end of the spectrum, it sells a fully functional EV in China for under $10,000. At the other end, it produces a tech-flagship supercar to showcase its engineering prowess. This spread across both price points is more than a marketing curiosity: it demonstrates the breadth of BYD's manufacturing system and its ability to apply cost discipline across very different categories.

Most legacy OEMs (and even some EV pure-plays) rely on long supplier chains with outsourced suppliers and offshore logistics. BYD's "own the guts" approach compresses the bill of materials and shortens cycle times. It also allows them to produce EVs at a 30% discount to their peers, which is why they can price sharply and still move volume.

BYD's cost advantages show up in the financial results. Its vehicles can be priced as much as 30% below peers while still leaving room for profits. That is why the company has been able to grow earnings more than 40% year-over-year while consistently earning returns on equity above 20%. Every year, BYD launches fresh models that strengthen its reputation. Scale and learning-curve effects reinforce themselves: the more cars BYD sells, the more it spreads fixed costs, the more it drives down variable costs, and the more it can undercut competitors who depend on fragile supply chains.

You might be wondering, isn't everything in China going to suffer in a high-tariff environment? BYD barely sells anything to the US. Only their buses. They are currently winning Europe and beating out Tesla in every major market.

In a high tariff environment, they will thrive. They will double down in non-US markets such as Mexico, Chile, Brazil, Thailand, Vietnam, Indonesia, and most of Europe. They may build factories in Mexico or Canada to bypass the US Tariffs. And in a high tariff environment, they may see subsidies and incentives to build and ramp up production in China-friendly countries.

“Charlie called me one day and says, ‘We’ve got to buy BYD. This guy runs it better than Thomas Edison.’ And I said, ‘That isn’t good enough.’ And he called a little later and said, ‘He’s a combination of Edison and Bill Gates.’ And I said, ‘Well, you’re warming up but it still isn’t good enough.'”

Eventually, Munger’s view prevailed. “Now it’s worked out so well that I’m actually starting to remember that it was my idea,” Buffett said. Of Wang, he added, “He’s got big, big ideas and he’s very good at executing.”

- Warren Buffett speaking on Wang Chuanfu to Becky Quick on February 26, 2018

The bet on BYD is not that the EV hype cycle is returning. It is BYD's structural cost leadership that will keep compounding. The company already leads in China, has won share in Europe, and is planting seeds across Latin America and Southeast Asia. The combination of relentless cost reduction, product breadth, geographic diversification, and financial discipline is rare in the auto industry; it makes BYD well-positioned to keep capturing share over time while retaining much of the economic value for itself.