NEW YORK (TheStreet) - On Monday, I sat down with Paul Lin, a spokesman, for BYD Auto Company Ltd at the Detroit Auto Show. He revealed to me that the company is planning on coming to America in 2012. It's time for American investors to start playing closer attention to this company.
In some ways, BYD -- which stands for "Build Your Dreams" -- is the least known company that most people know
has invested in. The best known investor in the world discovered the company a few years ago and took a big stake.
Part of the reason why BYD still has a low profile is that the stock isn't traded over here -- only in Hong Kong under the ticker "1211." What doesn't trade here tends to be overlooked, whether it's Tencent Holdings in the China's Internet space (which has a bigger market capitalization than
or BYD in the auto space.
At the time of Buffett's investment, the Chinese auto market wasn't on the radar of most investors. Today, it's the biggest in the world, surpassing the U.S. last year with no signs of slowing down. Although there is enormous competition in the market, including a strong presence from
, Volkswagen, and
, BYD is a hometown success story.
The Shenzhen-based company has decided to bring its E6 electric-powered compact to the U.S. market in the first quarter of 2012. It showed off the vehicle and several of the other electric-based cars in Detroit this week. The company has no specific targets on the number of vehicles they want to sell here in 2012 and 2013, but they clearly have global ambitions and aren't satisfied with simply selling their cars in China.
The company sees its biggest competition for the E6 in the U.S. coming from the Nissan Leaf. BYD believes that the E6 will have much better range (i.e., how far the car will drive when fully charged) and an attractive price. It hasn't released pricing for the U.S., but the E6 sells for between US $22,000 to U.S. $25,000 in China after government rebates have been applied.
It feels one of the biggest advantages BYD has over other electric car markets is that it's an integrated company which produces batteries as well as the cars. Even though most think of BYD as only a car company, cars are simply one of three main divisions.
It has an equal focus on solar, as well as energy storage. It's that energy storage business in which it develops its battery technology which gets leveraged in its cars. Therefore, it believes it can optimize the cars and batteries together for a better product with better specs and at a better price. Other car companies - take
for example - have to use battery suppliers from external suppliers like Panasonic, for example.
BYD has its own battery plant in Shaanxi province. It also has a large solar plant in the same province. It even has a consumer electronics division that isn't connected to autos, solar, or batteries, but which has been showing signs of life lately on the recent strength of
, a big strategic partner.
Despite BYD's Buffett connection and recent success, the stock has many skeptics who think it's overbought at the current levels, even though it's almost half the price of where it was at in the first quarter of 2010.
The short argument is that BYD has relied heavily of government orders and government tax incentives to boost its growth to date. Some of those incentives have been taken away and BYD's guidance has been lowered twice by the company in the past year. Mr. Lin pointed out that the U.S. has similar tax incentives for its own manufacturers, such as the Tesla's $500 million loan from the Department of Energy.
BYD critics also point to the company's lack of profit as a major cause for concern. When I discussed this with Mr. Lin, he said it was not the right time to focus on profit. BYD had aimed to get its product out in the market and demonstrate its durability. There have been a number of deals which the company has struck with local Chinese governments for taxis, buses, and police cars. These weren't aimed to be huge money-makers, he said, but to show future consumers how well the car performs from heavy users.
There have been some rumors that some of BYD's dealers have been upset by a lack of payment of cash rewards to them from BYD for sales success. Mr. Lin says these problems are out of date and have long since been resolved. He said BYD currently has 1,000 independent dealers in China. BYD itself owns none of the dealerships. He said the company plans to keep growing its dealers, but always with a focus on quality not quantity in a given year.
There has been much in the news lately about Beijing's restrictions on vehicle licenses in the capital to control pollution and congestion. Recent IPO and Beijing car dealer
has been hit hard by this news as investors have been concerned that there will be fewer auto sales locally as a result. Mr. Lin said that Shanghai had had such restrictions for a while and the Chinese auto market has kept growing. The big opportunity, he said, for all auto companies is growth outside the major Chinese cities.
BYD has big ambitions, a big friend in Uncle Warren, and is in a great position being a leader in Chinese electric cars at a period where the market there is growing by leaps and bounds. Investors in the U.S. need to pay much more attention to the company but be cautious given the lack of profits to date. If the company can demonstrate that it has a much firmer grasp on future revenue projections, it will help restore confidence in the stock once more.
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At the time of publication, Jackson was long Tesla.
Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson