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2 Hidden Opportunities for China’s Tesla

Tesla (NASDAQ: TSLA) has long been regarded as the world’s number one electric vehicle (EV) company. Its vehicles, like the Roadster and Model S, have captured the public’s attention. The company’s gigafactories, giant facilities that make batteries and electric vehicles, have been regarded as cutting-edge while its CEO, Elon Musk, has been regarded as a visionary similar to Steve Jobs.

Yet for all of Tesla’s hype, it lags behind China-based, Hong Kong-listed BYD Co Ltd (SEHK: 1211) in several crucial metrics. BYD, not Tesla, is the global leader in EV production. BYD produces its own batteries while Tesla relies on Panasonic for battery-making expertise in its gigafactories. Warren Buffett invested in BYD but not Tesla, in part due to the exceptional executional capabilities of BYD’s leader, Wang Chuanfu.

It’s understandable why Warren Buffett would invest in BYD. The company stands to benefit from powerful trends such as the expected large increase in demand for EVs and batteries in China. Given that it’s the largest EV maker and one of the largest battery makers in the world, BYD benefits from scale as well as potential government support.

While there is much to like from BYD’s battery and EV-making operations, the company also has two hidden opportunities:

Higher margins from data

Due to big data and the emergence of autonomous driving, automakers like BYD have an opportunity to make money from more than just producing cars. According to McKinsey, the global sales pool from the monetization of car data could amount to as much as US$450-750 billion by 2030.

Car data has many uses. Insurance companies could use car speed, navigation, and acceleration data to better price premiums. Automakers could use data to better tailor their future products to the market and to suggest customers go to repair shops in a way that increases the lifelong value of the customer. Hedge funds could use car data to better determine demand trends.

In terms of who has access to the rich dataset, carmakers such as BYD are arguably in the best position given that they produce the cars. Given that BYD doesn’t need to do much work to capture the opportunity, selling car data could potentially be a high-margin business.

In addition to selling big data, BYD could potentially capture more benefits from technology by producing self-driving cars. With this, BYD could potentially offer its own autonomous driving fleet and charge more than it otherwise would have. In terms of its efforts, BYD hopes to build a self-driving car within three years with the help of Chinese tech firm Baidu.

BYD’s SkyRail business growth

Although it isn’t very well known outside of BYD shareholders, its SkyRail business has a lot of potential. Due to five years of research, BYD has created a product with competitive advantages versus existing solutions.

SkyRail is a driverless, fully integrated straddle type monorail that costs significantly less to maintain and operate than comparable rail rapid transit lines across the world. It’s also high capacity in terms of people per hour it can move and is highly reliable to boot.

In terms of contract wins, BYD signed a contract to build a SkyRail in Salvador, Brazil and in its interim 2019 report, BYD said that SkyShuttle and Skyrail:

“Boast significant market demands, and the Group has received orders from numerous cities in domestic and overseas markets since their launches”.

If BYD can successfully sell SkyRail to cities around the world, the division could generate substantial revenue for the company further down the line.

Foolish takeaway

Although China’s economy has slowed and the government has begun cutting subsidies to EV makers, BYD’s operations have a lot of potential in the long term. This is especially true of car data and SkyRail. If the company continues to execute well, BYD’s stock could be a solid winner over the longer term.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.