Tesla bear Charlie Munger’s bet on BYD

The Tesla vs. BYD debate has been hotly discussed on Wall Street in the past several months, especially watching the two compete in the world’s largest auto market. While the Chinese market remains an important one for Tesla bulls, some bears are betting on BYD as the future leader of the country’s auto sector.

Image: Casey Murphy / EVANNEX.

Berkshire Hathaway chairman Charlie Munger says that Tesla is far behind BYD in the Chinese auto market, as stated during a virtual meeting in recent weeks that was covered by CNBC. Munger considered the answer easy when he was asked whether he preferred BYD or Tesla as an investment.

“I have never helped do anything at Berkshire [Hathaway] that was as good as BYD and I only did it once,” Munger said on a meeting call in recent weeks. “Tesla last year reduced its prices in China twice. BYD increased its prices. We are direct competitors. BYD is so much ahead of Tesla in China ... it’s almost ridiculous,” Munger later added.

Even Tesla CEO Elon Musk has pointed to how important the Chinese auto market is, recently airing some respect for the country’s automakers.

“We have a lot of respect for the car companies in China,” Musk said on January 25. “They are the most competitive in the world.”

To be sure, BYD is backed by Berkshire Hathaway, and many Tesla bulls argue that the U.S. automaker’s operating margins and global reach may make it the leader in the long run, as is discussed in this Wall Street Journal video detailing the differences between the two automakers.

Video: Wall Street Journal / YouTube.

While Tesla’s cars largely still represent luxury vehicles in China, BYD’s brand offers a range of affordable gas and electric options. Still, it doesn’t quite have the luster as a brand that Tesla has, being that the U.S. EV brand is considered on the cutting edge of cars from a consumer standpoint. Additionally, BYD’s initial electric cars look quite similar to Tesla’s vehicles, with many comparisons being made between the Seal Sedan and Model 3, from aesthetics to specs.

Tesla still sells fewer vehicles each quarter than BYD, but its profit margins significantly outpace those of BYD. At its current rate of expansion, the U.S. automaker is aiming to continue expansion beyond its U.S., China and Germany factories — with recent reports pointing to the automaker’s coming plant in Mexico. As of yet, BYD has been slow to expand and no specific date has been set for the company’s entry into the U.S. market.

It's tough to say with any certainty where the auto market will go, but Munger backing BYD over Tesla shouldn't come as too much of a surprise — and it should at least be taken with a grain of salt.

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