Warren Buffett pulled off a signature coup in 2008 and scored 5,000pc returns - AP Photo/Nati Harnik
Success in the stock market requires a great deal of thought, analysis, insight, research, and then a bit more thought for good measure.
At least that is what we are led to believe. In reality, investors can be punished for thinking a little too hard. Due diligence can stretch from hours into months, with um-ing and ah-ing costing sidelined investors significant gains time and time again. Risk, while necessarily shouldered for the best returns, can be overwhelmingly frightening.
Take Tesla, for instance. At the beginning of the year, I agreed with a friend that the company’s stock price seemed like an extremely obvious candidate for a nosedive. It sported a price-to-earnings ratio of almost 200, along with a boss seemingly set on tanking good will towards his company, and with it, demand for his cars in many key markets.
Mr Musk’s actions are worrying shareholders – a gesture he referred to as a “Roman salute” has not gone down well in Europe. In a recent survey of over 100,000 Germans, 94pc said they would never purchase a Tesla, while sales in their country were down 62pc during the first quarter of 2025 compared to the year before.
The electric car manufacturer’s sales have plummeted all over the Continent; it sold 9,945 vehicles in Europe in January, down 45pc from 18,161 during the same month in 2024, according to data from the European Automobile Manufacturers’ Association. Australians are also voting with their wallets, with annual sales Down Under tanking 71pc in February.
‘Generational fumble’
This may have come as a surprise to Tesla’s chief, who has insisted that protesters against his brand simply “want to hurt Tesla because we’re stopping the terrible waste and corruption in the government”. But it didn’t come as a surprise to me or my friend, who watched from the sidelines as the stock price tumbled 40pc since the start of the year. Ultimately, we didn’t fancy the risk of betting against a stock that had burned short sellers in the past, and had ignored what was to us an incredibly obvious opportunity.
Gen Z investors on social media refer to errors like this as “a generational fumble”. Bolder investors did not fumble this opportunity, with short sellers scoring $16bn profit from Tesla’s collapse.
Fortunately, I have found solace in the performance of what is arguably Tesla’s strongest competitor: BYD. It’s a Chinese electric vehicle manufacturer that is becoming notorious for its low prices, which it is able to offer due to vertical integration (BYD makes its batteries and semiconductors in-house) and its home country’s low manufacturing costs. Some BYD cars have been well-reviewed in these pages – others, not so much.
BYD is no minnow. It boasts a market capitalisation of around £110bn, placing it comfortably within the world’s 100 largest companies. Warren Buffett pulled off a signature coup when his firm, Berkshire Hathaway, snapped up a 10pc stake in the company in 2008 for just $230m. He paid around a dollar per share, which today changes hands for around 50 times that price.
While Buffett trimmed his stake in the company last year, BYD remains an obvious winner to me. If Tesla fails to recover the ground it is losing, BYD is incredibly well-placed to cement its status as the world’s leading electric car manufacturer – and its market cap is around a quarter of that of its Texas-based rival.
Trade war immunity
BYD does not even sell cars in the United States, which immunises its products from President Trump’s tariff onslaught – a 25pc tax on car imports, as well as 54pc on China-made products. In countries where BYD does sell its wares, countries impose hefty tariffs to keep their own products competitive. Canada, for example, levies a 100pc tariff on Chinese EVs, while those charged by the European Union are set to rise from 10pc to up to 45pc over the next five years.
But despite heavy tariffs, the manufacturer remains competitive in European markets due to its pricing. Tesla’s lead in sales numbers is dwindling, while BYD’s European sales are projected to more than double from 83,000 units in 2024 to 186,000 this year, with a further increase to just under 400,000 units by 2029, according to S&P Global Mobility.
Last month, the Chinese manufacturer announced that it is including its “God’s Eye” self-driving technology as standard, free of charge, with 21 of its 30 cars. That includes its low-cost Seagull hatchback, the cheapest of BYD’s EVs, which is estimated to cost less than £15,000 when it arrives in the UK.
BYD’s aim to be in the top three brands in Europe by the end of the decade – alongside plans to have 100 dealerships in the UK by the end of 2025 – looks increasingly realistic, and its competitors are nervous.
Hiccups along the way
Investors are taking note – the stock’s price has grown 30pc year-to-date. But while the stock is having a moment, the fundamentals do not indicate that it is overhyped. BYD’s price-to-earnings ratio is a reasonably sensible 26, compared to Tesla’s 138.
Any investment in China comes with risk, and the country’s stock market is notoriously volatile. During the global financial crisis it plunged 65pc, more than any other major market. In October 2024, the Shenzhen composite index tumbled 8.2pc in a single day, marking its biggest fall since 1997, after Beijing’s efforts to stimulate the economy disappointed investors.
BYD is not immune from such volatility; anybody who bought shares in July 2022 will have seen the value of their investment more than halve over the following 18 months, and would only have been back in the black at the beginning of this year. The stock price slipped two weeks ago following news that BYD is being investigated by the EU for possibly using Chinese subsidies for its Hungary-based factory. In short, holding this stock is unlikely to be plain sailing.
But hiccups along the way are unlikely to stunt BYD’s rapid growth. The world is changing quickly; Trump’s decision to impose tariffs on both his country’s allies and adversaries may see the dominance of American equities ebb. There may be an opportunity for China to position itself as a newly reliable partner in global commerce, and if one of its leading firms can supply the world with cheap electric transport over the coming decade, a £110bn market cap may be conservative.
BYD’s performance has hammered home a quote from Berkshire Hathaway legend Charlie Munger: “Good ideas are rare – when the odds are greatly in your favour, bet heavily.”
Your best idea is generally better than your seventh-best idea, and if you think something seems obvious before others have begun to agree with you, you may have found an opportunity.
All I know is that I’m done um-ing and ah-ing; I refuse to be sidelined on another Tesla-short-sized opportunity, whatever form that may take. The next time something is obvious, I am putting my money where my mouth is – just like I have with BYD.
