BYD: The Next Auto Giant?

 |  Includes: BYDDF, DDAIF, F, GM
by: Charlie Anderson

This is an historic point in the economy, but we will look at it in the specific sector of the auto industry. This historic point, however, (like many) offers a great opportunity to make a chunk of change.

Let's face it, the U.S.'s auto future isn't looking bright; but China's sure is. The change is finally being made from gas to electric, and the big three now have to make astronomical infrastructure and research investments to make the keep up.

All of the Chinese auto start-ups, however, are just entering the market, so they have no changes to make; they just build their factories around electric cars. This change is very much favoring the newcomers. But you ask, how do we invest in a small Chinese auto company?

BYD (OTCPK:BYDDF) , in my opinion, is the only way for a U.S. investor to gain access to an extraordinary change in the auto industry via China. After doing extensive research into many different Chinese auto makers, including Chery Automobiles and others whose names have escaped me, BYD is the only one that is managed well and is readily accessible for an American investor. All of the other Chinese car makers that I found were either not available on the pink sheets or ADRs, there was no information on them, or they seemed kind of shady. It can be difficult to find Chinese companies due to the odd inner workings of the government, but this company is a beacon of light.

BYD was started in 1995 in Shenzhen, China by Wang Chuanfu. He worked hard and started a cellphone battery company. By 2002, BYD was the world's second largest cellphone battery maker. Still not satisfied, Mr. Chuanfu moved into the auto industry. He used his extensive knowledge of lithium ion batteries to make hybrid cars. This results in a very close bond between battery and car.

Also, BYD makes every part of their cars except the windows and the tires, which I think will help them in the long run because they are very disciplined and well-managed, so they should be able to coordinate everything better that way. The staff is made up of a frugal executive staff and 10,000 highly skilled engineers working on battery and car development. The employees live in company provided housing. The management does everything very strictly and frugally.

In 2011, BYD is coming to the United States, and hopefully they will be able to gain a quick solid ground with their line of competitively-priced all electric and dual mode (DM) cars. BYD, unlike any other large car manufacturer in the world, has already created an all electric car. Also, it's a plug-in. Just plug your BYD E6 into your garage wall socket for 7 hours while you sleep, and when you get up to go to work you can drive 250 miles with zero carbon emissions. BYD would like to expand its global presence, but the F3DM was the best-selling car in China last year. BYD is in talks with Volkswagen about supply deals, and they have made deals with MidAmerican Energy to use BYD batteries for storage of energy harnessed by MidAmerican wind turbines and solar panels.

Between having battery and auto interests, BYD is set to profit enormously from the growing Chinese middle class.

Disclosure: I am long BYD.