3 Things Every BYD Investor Needs to Know

It isn't a household name... not here in America anyway. That's largely because it doesn't sell its product in the United States (at least not yet). If you've stumbled across BYD Company (OTC: BYDDY), however, you probably liked what you saw -- like its profitability -- enough to consider taking on a position in China's electric vehicle giant. And understandably so.

Before you make or build on such an investment, though, you'll want to understand the three biggest factors driving this stock's price right now. These factors are likely to continue driving this ticker's price for the foreseeable future.

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1. The company is fiercely self-sufficient

Making automobiles can be incredibly complicated. Aside from sourcing thousands of different parts from all over the world, they must be assembled in one place, and then delivered to where they're sold. It's just a lot to manage when you're outsourcing much of this production and service.

BYD takes the even more complicated approach to being in the carmaking business, though. Rather than punting much of its manufacturing work to third-party partners, it does the bulk of this work itself. Unlike many of its nascent competitors, it also manufactures its own lithium-ion batteries used in almost all modern electric vehicles. BYD even owns seven massive boats used to transport electric vehicles from China to overseas markets, rather than relying on contracted maritime delivery services.

All these decisions incur significant up-front costs. In the long run, however, they provide BYD with the flexibility and nimbleness more companies wish they enjoyed. (The next detail about BYD says as much.)

2. BYD technically already dominates the EV market

Tesla (NASDAQ: TSLA) may still be the best-known name in the business, but it's no longer the biggest. In terms of total unit sales, BYD technically eclipsed Tesla earlier this year, and on a worldwide basis has now outsold Tesla for four consecutive quarters.

Given its capacity to make and deliver electric cars exactly how, when, and where needed, it's reasonable to presume the company will continue widening its lead on its top rival as well as all other competitors.

3. Like Tesla, competition is crimping BYD's profit margins

Being bigger doesn't necessarily mean this company can simply push its rivals around indefinitely, however. BYD's share of the electric vehicle market in China -- where the company still does most of its business, and where most EVs are sold -- slipped from 36.1% in October of last year to only 23.1% last month, with share going to newer entrants like Geely, SAIC, and even Xiaomi.

This fresh competition has forced BYD to discount its cars too, dragging its recently reported third-quarter profit down 33% from its year-ago comparison. Although financial analyst EY (formerly Ernst & Young) expects electrified automobiles' share of China's passenger car market to grow from 50% to 90% of the country's total automobile market by 2034, those price-competitive rivals will still be around then, keeping pressure on BYD's profit margins in place the whole time. The company will eventually need to respond.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company and Xiaomi. The Motley Fool has a disclosure policy.