[Update] BYD (BYDDY)

I didn’t expect the energy security argument to get tested this fast…

Back in January I bought a small position in BYD, the largest EV maker in the world, and wrote up the whole thesis.

BYD (BYDDY): Investment Thesis

A big chunk of the argument centered on China’s energy security problem, and I figured it was a slow-burn thing. The kind of tailwind that would play out over years, not months.

Then the US went to war with Iran, oil blew past $100, and the Strait of Hormuz effectively shut down.

China imports over 70% of its oil through seaborne chokepoints. Half goes to transportation. I argued that Beijing treats electrification as a national security priority more than anything else.

“This isn’t a sentiment call. It’s a structural reality that will play out over years, and BYD is the best positioned company to benefit from it.”

The stock hasn't done much since I wrote it up. It's up about 8%, which is fine, but a lot has happened with the business and the macro picture since January that I don't think the stock is reflecting yet.

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Oil, Iran, and Why This Matters

I didn’t expect the energy security argument to get tested this fast…

On February 28th the US and Israel launched strikes against Iran. Within days, tanker traffic through the Strait of Hormuz ground to a halt and Oil surged past $100/barrel. The International Energy Agency called it the largest supply disruption in the history of the global oil market.

As of this week the strait is still effectively closed, Trump is promising to hit Iran “extremely hard” for the next two to three weeks, and oil is sitting above $109. It was around $70 when I wrote the original post…

I’m not going to pretend I saw a hot war with Iran coming. I didn’t. But the whole point of the energy security thesis was that oil dependency creates vulnerability, and vulnerabilities eventually get tested.

Beijing is/has been watching. They were already building strategic reserves and accelerating EV adoption before any of this. Now the urgency is on a completely different level. And the runway is still long.

“In China, EVs now make up about 50% of new car sales, which sounds like the transition is nearly complete. But only around 10% of the cars actually on the road are electric. The other 90% are still burning gasoline and diesel.”

Every one of those cars that gets replaced by an EV is one less barrel China needs shipped through a war zone. And BYD’s supply chain is built for this moment.

Bank of America put out a note calling China’s EV supply chain “relatively insulated” from the Middle East disruption. Makes sense when you think about it. BYD makes its own batteries, its own chips, and increasingly ships on its own cargo vessels. They don’t need anything coming through Hormuz.

Meanwhile a BYD salesman in Manila told Bloomberg he got a month’s worth of orders in two weeks. Showrooms in Hanoi had to hire extra staff after foot traffic quadrupled. Thailand’s new Prime Minister showed up to the Bangkok Motor Show in his own BYD.

The oil shock is turning tire-kickers into buyers all across Asia. One analyst compared it to how the 1970s oil crisis paved the way for Japanese fuel-efficient cars, except this time the technology eliminates the need for petroleum entirely.