The REAL Reason Tesla is Winning in China

Charlie Munger is a highly respected investor and businessman who is best known for his long-standing association with Warren Buffett and Berkshire Hathaway where he serves as Vice chairman of the company he's been well known to hold strong views on various company investments in Industries although Charlie Munger is not as famous for individual stock picks as Warren Buffett he made a few notable Investments over the years specifically one of his best investments of all time has been byd a Chinese Vehicle Manufacturer for which he was an early investor however just days ago Charlie Munger was interviewed on CNBC and praised byd just as his firm trimmed down its position in the stock despite the move Monger strongly believes that byd is so far ahead of Tesla in China that it's ridiculous but this conflicts with Elon musk's view of Tesla where on the recent fourth quarter conference call Elon Musk stated that the Tesla team is winning in China while at the same time predicting that it will likely be a company from China that ends up being second to Tesla it's clear that both Tesla and byd have been strong contenders in the rapidly growing electric vehicle Market but the playing field has just changed dramatically and Charlie Munger may not be ready for what comes next and before we continue stop using Yahoo finance stop using Google Finance and have a look at our website the market isopened.com where we have instant stock quotes and a brand new set of financial data going back 15 years and it's all freely available back in 2008 Charlie Munger and Warren Buffett made a significant 230 million dollar investment in byd which at its peak last year had risen about 40 fold to 9 billion dollars a massive gain for Berkshire Hathaway for which the investment was originally led by Charlie Munger Berkshire originally purchased 225 million shares of the Chinese automaker and has been trimming its position in the recent year with the most recent sale of another 1 million shares just a few weeks ago in January bringing Berkshire Hathaway's total share count to still a hefty 153 million byd shares roughly 10 percent of the company Munger Justified the recent sale by explaining that at 50 times earnings at the current price of byd stock little byd is worth more than the entire Mercedes Corporation indeed byd is trading at 59 times earnings with a 107 billion dollar market cap where Mercedes is closer to 83 billion now what's interesting is that Tesla traded at 30 times earnings before the stock doubled this year and Charlie mugger doesn't have anything against Elon Musk he's previously said that he's brilliant but he's just a much bigger fan of byd during a recent CNBC interview from a few days ago Charlie Munger was asked why does he prefer a byd investment over a company like Tesla and manga replied that's easy Tesla last year reduced its prices in China twice and byd increased its prices their direct competitors byd is so much ahead of Tesla in China it's almost ridiculous now byd does have higher total vehicle sales than Tesla but over half of byd's Fleet is actually made up of plug-in hybrid vehicles which are essentially more efficient gas cars that come with small batteries essentially two propulsion systems and Studies have shown that the gas portion of plug-in hybrid vehicles is used much more than people think making it not much more efficient than a traditional hybrid vehicle it therefore makes little sense to tally up these vehicles and include them in electric vehicle sales since they don't have a bright future there are many other automakers that sell huge volumes of gas and hybrid vehicles and it doesn't make sense to compare those to Tesla and so looking at purely battery electric vehicles that have zero emissions Tesla is still in the lead on a global basis especially when compared to byd's Global sales in 2022 byd sold 911 000 electric cars whereas Tesla sold 1.31 million the majority of Tesla's production also comes from China with Tesla's Giga Shanghai producing more vehicles in all of Tesla's other factories combined although it's not broken out byd likely has slightly higher EV production in China since they're based in the country but it's interesting that Tesla has only been in China for three years since the time that Giga Shanghai began deliveries in December of 2019 and they're already meeting byd's battery electric volumes now Charlie Munger may have the wrong picture of what's happening in the electric vehicle space since he's quite happy that byd is Raising prices as Tesla lowers them normally he would be correct since price increases means that there's high demand whereas price decreases would mean the opposite but there are other forces at play Global Supply chains have been tossed around due to the pandemic which has led to shortages and a higher costs for auto manufacturers companies raising prices today are trying to cover their increased cost from inflation eating at their margins although byd sells more overall Vehicles than Tesla Tesla's profits were about 10 times higher in 2022 and so Tesla has room to lower prices and still remain highly profitable whereas byd needs to raise prices in order to Simply maintain its low margins there is also this new technology curve whereas Tesla continues to ramp up its vehicle production and refine its manufacturing they gain economies of scale helping them to lower costs this would also apply to a portion of byd's business but the majority of their sales include gas engines Kathy Wood of investment firm Arc invest chimed in on Twitter saying that Monger as well as many on Wall Street don't understand that passing on Lower costs associated with technology-enabled Innovation will cause a boom in unit demand and so what's happening is that byd is Raising prices right into Tesla's price decreases which seems like byd may be running straight into a brick wall Charlie mugger may have made a small but meaningful error when he stated that Tesla and byd are direct competitors which actually doesn't appear to be the case while both companies sell Passenger cars making them appear to be very similar they actually Target two very different market segments Tesla has traditionally targeted affluent consumers who are willing to pay a premium for high-end electric vehicles with Advanced features and performance byd on the other hand has a more diverse customer base where it's been able to sell much cheaper vehicles to individuals businesses and governments so the companies have essentially been selling into two completely different markets targeting consumers at varying income levels but for the first time ever Tesla's new prices now overlap with byd's prices for instance when the byd seal a Tesla Model 3 competitor came out last year it was released at a much lower price than the model 3 with about a ten thousand dollar price Gap but now after Tesla's most recent price cuts across all of its models the China Tesla Model 3 is just five hundred dollars away from byd's seal consumers aren't stupid and while a ten thousand dollar difference is more than enough to discourage a purchase decision a five hundred dollar price Gap to get a higher quality product that's essentially a status symbol all around the world is a no-brainer Tesla has a leadership position in hardware and software capabilities and so now that the prices are similar there's nothing left to defend byd against Tesla's offerings a closer look at the interior of byd seal for instance shows that it's still cluttered with buttons and the entire front dash is a giant Antiquated air vent Tesla is now bringing Innovation at the same price as these old looking archaically designed vehicles and try Charlie Munger doesn't realize the technology Gap he's used to buying companies like Banks steel companies Coca-Cola companies that are easier to understand as they compete on unit sales and raw Financial metrics but lack a real technology stack Tesla for instance writes all of its own software for its autopilot and full self-driving features which integrates seamlessly into its Vehicles this makes Tesla very highly vertically integrated it's also untraditional for a car company to build these things in-house whereas byd outsources to nvidia's self-driving platform Nvidia Drive meaning that it's losing a bit of control over its own destiny they can only move at the rate that Nvidia moves at since they need to deliver General solutions for the entire industry this is increasingly important as software becomes the differentiating factor between Vehicles Tesla isn't limited by anyone else and we've already seen how they can use that advantage to highly integrate into the vehicle's hardware for instance to combine the vision system with the airbags to boost the vehicle's industry-leading safety another critical selling point to Consumers Charlie Munger is also ecstatic that byd has a massive physical footprint in terms of its factories touting the 18 million square meters or 193 million square feet that byd has of space across 30 plus industrial parks traditionally this is impressive but it also comes at a high cost Tesla is moving in with just a small number of Highly productive factories with a single Factory in China Tesla is nearly able to match byd's six Nationwide factories production Tesla's newest Texas gigafactory is 10 million square feet a massive building but it's meant to use the floor space extremely efficiently producing all the components of a vehicle including 4680 battery cells and it's intended to have an output that eventually exceeds byd's current production from all of its factories combined at around 2 million cars per year so more land space isn't necessarily better Tesla's 4680 batteries cell is also expected to rival the cost of byd's inexpensive blade battery over the coming years the blade battery while impressive appears to be a one-trick pony where it uses cheaper cathode material lithium iron phosphate in Prismatic form factor but this doesn't scale well into larger Vehicles given its poor energy density Tesla's 4680 seems to be more diverse and will eventually be able to support multiple types of cathodes in order to power vehicles from large Tesla semis to small compact cars speaking of which this is another reason why byd may see some competition for the first time according to Tom Zoo a high-profile executive at Tesla China Tesla is preparing to launch a smaller more affordable vehicle into the Chinese market likely in 2024 if the Tesla Model 3 is already hitting comparable pricing to byd's Vehicles then another significant price draw from a specifically tailored Flagship Chinese car made by Tesla in China could put even more pressure on byd Charlie Munger is pessimistic on all new technology while holding an investment that he no longer understands breaking a key rule that Warren Buffett popularized that investors should focus on businesses and industries that they understand well and avoid those that are outside their area of expertise for instance mugger recently stated that while AI is important new technologies such as chat GPT isn't going to cure cancer this is a logical fallacy or deflection to distract from the core issue at hand of how AI could flip many Industries on their heads not to mention that it could indeed be used as a tool to help humans cure cancer as it has the ability to process vast amounts of data in a short period of time which is likely what it's going to take to come up with new effective Solutions so Charlie Munger may be saying one thing and doing something else as he is quietly halved his byd position over the past year while continuing to praise the company if anything it's not Tesla that's facing competition for the first time in China it seems to be byd finally having a rival that's more on a Level Playing Field it's cheaper to produce vehicles in China to begin with and traditionally U.S automakers have had to import vehicles and pay Hefty tariffs and taxes or create joint Partnerships with Chinese companies in order to operate in China but Tesla has the only wholly owned Factory for a U.S automaker and is leveraging its U.S technology along with the speed and work ethic in China byd has never seen anything like this before and so while the rapidly growing production of their cheap vehicles Tesla has now pushed its way through the ceiling of the lower end market and they're planning to continue taking prices much much lower so do you think Charlie Munger is worried about Tesla in China which is why Berkshire has been more aggressive in trimming its byd stake over the past year or so and will Tesla's lower priced luxury cars put pressure on byd in 2023 and Beyond don't forget to watch my video on how Elon Musk is planning to crush lithium prices please hit the like button and subscribe we would really appreciate that and a huge shout out to all of our patrons that 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Channel: TMIO Tesla

Views: 37,993

Keywords: tesla, elon musk, BYD Seal, Charlie Munger is Grossly Mistaken About Elon Musk and Tesla, Tesla is About to CRUSH BYD in China, Tesla Price Cuts Are the Real Reason Tesla is Winning in China

Id: 7hg_v8_SNt8

Length: 14min 20sec (860 seconds)

Published: Sun Feb 19 2023