Which Electric Car Makers Should We Invest In?
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One Chinese automobile company, which legendary investors Warren Buffett and Charlie Munger have been quite bullish about, is BYD (NASDAQOTH: BYDDY.PK). In the past five years, BYD has been considered a super volatile stock. BYD went from $3 per share at the beginning of 2009 to $22.20 in October 2009, and then it dropped back to around $3 in October 2011. At the time of writing, BYD was trading around $7 per share.
Net profit leaped significantly
Several days ago, BYD announced its impressive first quarter earnings results. In the first quarter of 2013, BYD generated nearly RMB 12.9 billion in operating income, 9.8% higher than the operating income of RMB 11.73 billion in the first quarter last year. The net profit came in at RMB 112.4 million, three times higher than its Q1 2012 net profit of only RMB 27 million. The number of cars in the first quarter has experienced a year-over-year growth of 25.1% to nearly 143,000.
Previously, the company expected a sharp rise in its profit in the first quarter. The significant increase in the first quarter earnings was due to the introduction of new models and, more important, the government subsidies on its electric cars. Wang Chuanfu, the company’s chairman, said that the company had expected a new round of government subsidies for green vehicles, which would be announced soon. He thought that the Chinese Government’s subsidy might be extended into 2015.
Warren Buffett and Charlie Munger, via Berkshire Hathaway, poured around $230 million into a 9.9% stake in BYD via its wholly owned subsidiary, MidAmerican Energy. Munger also showed his long-term confidence in BYD as he stated that he put more than half of the family fund into BYD. He admired the company’s founder and CEO, Wang ChuanFu, saying that he was “a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do."
Tesla is turning to profitability
One of its peers, electric car maker Tesla Motors (NASDAQ: TSLA) is headed by entrepreneur Elon Musk, the co-founder of Paypal. At the beginning of 2011, Tesla got support from the U.S. Government with a low interest loan of $465 million. This loan is cheap, carrying only 1-1.2% interest. Thus, it has been giving Tesla a lot of advantages to develop its electric cars. As of December 2012, Tesla booked around $125 million in total stockholders’ equity, $202 million in cash and around $401 million in long-term debt.
For the past five years, Tesla has posted increasing losses, from $52 million in 2008 up to $266 million in 2012. Tesla has long expected that the Model S could lead the company to a profitable position soon. After years of losses, Tesla finally announced that it turned profitable in the first quarter of 2013 with more Model S cars sold than it had previously expected. For the full year, Musk estimated that the company would deliver around 20,000 Model S battery-powered sedans. The first quarter profitability news has sent the shares up as much as 16% in one trading day, and Tesla has kept going up to reach as high as $52 per share. Tesla is currently valued quite expensively, at 47 times its book value.
Toyota and Tesla on RAV4 EV second generation
Toyota Motors (NYSE: TM) has been quite famous with its hybrid environmentally friendly car Prius. In 2012 Consumer Reports, the Prius is ranked the most reliable and the best selling car in California with around 68,688 Prius sold. The increasing number of Prius sales was partly due to escalating gas prices in California. In 2012, Toyota planned to sell as many as 250,000 Prius cars this year, a growth of around 5.6% compared to 2012. However, the first quarter sales volume experienced an 8.4% decline to around 55,700.
For all-electric version cars, Toyota has partnered with Tesla to develop the second generation RAV4 EV, which was released in the U.S. in September last year. While Tesla takes care of the batteries and electric motor, Toyota takes care of the platform and body of the SUV. Interestingly, this RAV4 EV is sold only in the State of California, with only around 2,600 units produced in the first three years.
My Foolish take
Many automobile players have a lot of initiatives in the electric cars trend. Tesla and Toyota are both moving quite aggressively on this field. I do not like Tesla due to an expensive valuation. For BYD, what should be noteworthy about the company is its electric car supply to the public transportation, with the subsidy of the Chinese Government. When investing in BYD, investors are following Warren Buffett, Charlie Munger and Li Lu to mainly bet on its talented founder and chairman, Wang Chuanfu.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!