Two of the most disciplined investors in the worldBerkshire Hathaway and Li Lu (Trades, Portfolio)’s Himalaya Capitalown significant stakes in BYD. Yet the broader market remains hesitant. What are these long-term shareholders seeing that others might be missing?
BYD trades at valuation multiples that suggest caution, not conviction. But behind the modest pricing lies a complex manufacturing system, carefully built and increasingly capable. Analyzing its per-unit economics may help explain why some investors have quietly committed capitalwhile others hesitate.
Investors regularly overlook the subtleties that separate genuine long-term winners from temporary growth stories. BYD, a notable Chinese automaker and battery producer, currently trades at modest valuation multiples. Yet, investors remain cautious. Is this skepticism warranted, or is the market undervaluing a disciplined, quietly efficient operator?
Business Model and Unit Economics
BYD builds electric vehicles (EVs) and plug-in hybrids, integrated vertically from battery production to final assembly. This vertical integration allows BYD tight control over quality, costs, and innovation cycles.
Analyzing per-car economics reveals telling insights. BYD’s per-car capital expenditure (Capex) is derived from its cumulative five-year Capex divided by current output. Growth Capex, or incremental investment required to expand output, depends on multiplying output growth by per-car Capex. Additionally, evaluating employee productivity through vehicles produced per employee, revenue per employee, and gross margin paints a clear picture of operational efficiency.
Assessing the Factory
In the car business, investors aren’t just buying the finished productthey’re buying the factory that builds it. And the economics of that factory tell us everything.
Start with capital. For every Tesla produced, the company has spent roughly $18,750 to build the production capacity behind it. At BYD, the number is just $5,200. That’s not a rounding error. It means BYD can get more output per dollar of factory, freeing up capital for other usesor for growth itself.
Toyota also performs well here. With $6,400 of capital spent per current unit of production capacity. With BYD spending $1,040 on growth per unit of current capacity, it could double production in five years. Both Toyota and BYD generate sufficient free cash flow even after investing for growth, meaning they could accelerate expansion if they chose. BYD grows faster simply because its factories are cheaper to build. The contrast is more than academic. It reflects a company’s ability to scale with discipline rather than debt.
Ford and GM struggle in this regard. Ford is currently spending $1,620 per vehicle on growth Capexbut its actual factory cost per vehicle remains around $13,167. At that pace, it will take years to meaningfully expand capacity. GM, meanwhile, isn’t investing at all. Whether by choice or constraint, both firms now face a fundamental challenge: their factories require too much capital to grow efficiently. Compounding the issue, their facilities deliver relatively modest gross marginssuggesting the value created per dollar of capital is underwhelming. On top of this, their models depend heavily on uninterrupted, global supply chains. When those links falter, the entire system slows.
Capital, however, is only part of the story. Labor matters too. Vertical integration, the model followed by both BYD and Tesla, helps capture more of the value chainraising gross margins in the process. But it also requires more hands on deck. Toyota and GM, which rely more on external suppliers, build more cars per worker. That trade-offmargin versus headcountis a choice every automaker has to make.
The low-cost producer gets it right on both sides. It spends capital wisely and deploys labor efficiently. That’s what makes the factory humand that’s what investors are ultimately underwriting.
Risks & Unknowns
Strategically, the primary risk is BYD’s international expansion. Though successful domestically, maintaining margins and per-unit economics abroad remains uncertain. Operationally, rapid scale-up carries execution risksustained discipline during periods of rapid growth is notoriously difficult.
Conclusion
Here’s what investors are paying, relative to what each automaker produces:
Market capitalization is a measure of what investors are willing to pay for a company’s ability to produce. Divide the market cap by the number of vehicles produced, and the picture becomes clear: this is what the market is paying per unit of output capacity.
What are we getting for that price? In BYD’s case, we’re buying efficient, vertically integrated productionand the cash flow it throws off. Free cash flow per vehicle, after accounting for growth investment, is a useful proxy. And here, BYD stands out.
The story isn’t about hype or headline deliveries. It’s about a disciplined factory, scaled with intent, and producing vehicles profitably. That’s the structure investors are buying intowhether they realize it yet or not.
In 2024, BYD produced approximately 4.3 million vehicles globally, accounting for about 4.6% of the total global vehicle production of 93.5 million units. with a modest but growing share of global auto volume, BYD’s status as a low-cost, capital-efficient producer gives it a unique profile. In a capital-heavy industry, that combinationdiscipline, scale, and efficiencycan offer long-term investors something rare: profitable growth without the price tag of dominance.
