1 Reason BYD Co. Could Be the Top Stock Investors Are Missing

It's easy to understand why investors and Wall Street were focused on Western electric vehicle (EV) pioneers, given Tesla (NASDAQ: TSLA) essentially reenergized the industry from California. When looking for the next soaring Tesla stock, many jumped to look at Rivian or Lucid, while overlooking a growing Chinese Juggernaut, BYD Co. (OTC: BYDDY) -- and that's a mistake. BYD offers an enticing combination of global scale, impressive vertical integration, proven profitability, and the ability to develop a vehicle from the ground up faster than the industry has seen. But the one reason BYD could be the top automotive stock investors are missing is an easy one, with a great recent example: growth.

Coming for that top spot

BYD Co. might not be a household name in America, yet. The Chinese automaker doesn't sell a product here thanks to significant tariffs on Chinese EVs, but it has burst onto the global scene over the past five years. Last year, BYD sold more full-electric vehicles than its well-known rival Tesla and, even though BYD ended production of any gasoline-powered vehicles in 2022, it sold more new-energy vehicles (NEVs), which is just a term that combines full-electric and hybrids, than Ford Motor Company sold total vehicles last year.

BYD barely celebrated its growth, and instead talked about its new target: overtaking Toyota (NYSE: TM) to become the No. 1 automaker by global sales in five years. BYD Chairman Wang Chuanfu stated at its annual shareholder meeting, "BYD will truly become the No. 1 automaker globally in terms of scale in five years."

That would require more than doubling its 4.8 million sales globally to close the gap with Toyota and its lofty 11.3 million global vehicle sales. While entering the U.S. market, which remains the second-largest EV market by volume, would be a boost to reaching this target, the company has no plans to do so and will instead rely on its explosive international growth via Europe, Latin America, Southeast Asia, and Australia. Backing up Chairman Chuanfu, BYD Executive Vice President Stella Li added, "With our own organic growth... We don't need the U.S. market to achieve that."

Image source: BYD Co.

If BYD were to achieve this without yet entering the lucrative U.S. market, that would be massive growth alone, with tantalizing upside were it to find a way into the U.S. market in time. BYD's potential growth over five years is enough to dig deeper into it as an investment, but there's so much more that makes the Chinese juggernaut intriguing. One example is that the company boasts impressive vertical integration that enables it to build almost everything in-house, including batteries, electric motors, and software, which lowers costs and speeds up the development process significantly. Another example is its recent entry into Japan's minicar market, which no foreign automaker has dared to attempt in many, many years. BYD designed a vehicle specifically to succeed in the extremely challenging and strictly regulated market, and if it's successful, it would prove the Chinese juggernaut can truly enter any market and win.

Who knows if BYD can actually surpass Toyota in five years; it's a significant challenge, no doubt. That said, BYD has proven it can enter just about any market and gain market share, and it can do so increasingly profitably because of its vertical integration and advanced technology. BYD still has massive upside for investors with potential growth internationally, and eventually the U.S. market.

What it all means

This is an interesting point in time for the automotive industry, with multiple shifts and evolving technology that is increasingly intertwined with lucrative software or even artificial intelligence (AI). BYD offers immense upside over the next five years, as does the broader industry, as the auto industry expands into higher, software-like margins with new business, services, and apps. Savvy investors looking to get into the evolution of the auto industry would be wise to look deeper into this Chinese EV maker that has taken the globe by storm.

Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.