BYD's Bold Move Could Open It Up to New Markets. But Is the Stock a Buy?
Key Points
Japan's minicar market is known for being challenging, with picky consumers.
BYD was the first foreign entry in the Japanese minicar market in years.
BYD's Racco is a great example of the company's competitive advantages.
Chinese juggernaut electric vehicle (EV) maker BYD (OTC: BYDDY) surpassed Tesla in full electric vehicle deliveries last year. When comparing total global deliveries, BYD even overtook Detroit icon Ford Motor Company.
Now, electric vehicle maker BYD plans to overtake Toyota in five years, which would require it to more than double its deliveries last year. To achieve its goal of becoming the world's No. 1 automaker by volume, it will need to expand rapidly internationally, including entering markets where few automakers have dared to go: Japan.
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The BYD Racco. Image source: BYD Co.
Taking some of Toyota's pie
One direct way to begin its quest to surpass Toyota would be to take sales from Japan's long-sheltered minicar market with a vehicle designed and manufactured specifically for that market. Japan's minicar market accounts for about a third of total vehicle sales in Japan. Still, foreign automakers haven't had any luck cracking it thanks to the segment's strict size and power requirements, as well as finicky consumers.
BYD launched its Racco minicar in Tokyo on July 28, signaling its rising confidence and competitiveness on the global stage. For investors, if BYD can successfully penetrate Japan's challenging minicar market, it's just another sign that the Chinese automaker can effectively enter and steal market share anywhere. That should give investors confidence that BYD might substantially cut into Toyota's large delivery lead and underscore the potential for top- and bottom-line growth along the way.
Is BYD stock a buy?
BYD's entry into Japan's domestically dominated minicar market doesn't make the stock a buy in itself. However, it absolutely highlights BYD's competitive advantages, and that's what makes the stock a buy.
For example, BYD's Racco minicar emphasizes what some in the automotive industry call "China Speed." The team of engineers needed just over two years to develop the vehicle from top to bottom for a specific market with strict regulations -- and they did so with no prior experience with Japanese minicars. The rule of thumb for automakers is a 48-to-72-month development cycle for a new vehicle model, which BYD essentially cuts in half.
BYD even developed a new battery architecture called X-Pack to work within the small minicar dimensions. Management noted that the company could use this newly developed technology in other small cars globally. Further, roughly 70% of the Racco minicar's components are sourced in-house from BYD group companies, allowing the automaker to sometimes drastically undercut the competition on price without sacrificing quality or advanced technology options, and keeping value and profits in-house.
All in all, BYD's entry into Japan's challenging minicar market emphasizes its aggressive international growth strategy, the impressive extent of its vertical integration, and the speed at which it can develop products. BYD is a solid stock to buy as it embarks on its goal of overtaking Toyota in five years.
Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.