Free cash flow is a measure after capital expenditures and incorporates fluctuations in working capital. Since founding, BYD's modus operandi has been to re-allocate every dollar of operating cashflow + as much capital as it can raise — as non-dilutively as possible — to support
A better approach is to consider how much long-term capital the company has raised an compare it to the scale of operating capacity that capital has enabled. We can look at this from BYD's latest balance sheet, which I have summarized here:
To date, BYD has taken in a total of ¥340B in debt and equity funding. This number includes ~¥82B of ST/LT borrowings and ¥258B of equity (or equity-like) funding. The equity funding includes ¥107B of "undistributed profit" which is similar in concept to retained earnings
This capital (~$23B in USD, net of cash) has funded the buildout of BYD's operation today, which includes: (i) its contract manufacturing operation (~$27B in revenue, ~1/5th the size of Foxconn) (ii) the world's second-largest battery business (after CATL), and (iii) the
Just to put this in perspective, Tesla's comparable figure is ~$38B (shareholders' equity minus cash and ST investments), >60% higher than BYD (~$23B). This has funded a business that generates ~$80B in run-rate revenue (~16% gross margin) and vehicle production capacity of
So the better way to look at this is not "accumulated free cash flow" but considering whether the operating business/footprint today justifies that capital that has been invested + whether business can continue compounding at a high rate of return going forward. This is almost
OP highlights the supplier financing question. This is something I have analyzed before. If BYD were to switch a normal payable days cycle, this would result in ¥106B in additional net working capital. https://x.com/GlennLuk/status/...
This is how that change impacts BYD's balance sheet. Effectively, what was once funded by negative working capital is now funded by additional borrowings (or a drawdown out of the ¥175B it has in cash and equivalents). This increases BYD's net capitalization to ~$38B, in line
Thus for the same level of nominal $/¥ capitalization, compared to Tesla, BYD produces: (i) ~3x the car volume (ii) ~2x the gross profit (far more vertically integrated), and (iii) has a large CM business to boot. It is growing faster than Tesla on a YoY business and choosing
This financial illiteracy has extended to comments below like this. Referencing the aforementioned "undistributed profits" or "retained earnings", we can clearly see that BYD has generated cumulative profits of ¥107B since inception. https://x.com/Noahpinion/statu...
Per above, these profits — and more, via external capital raising at significant premiums to book value — have been reinvested back into the business, at high RoICs, especially if you take into account the long-term, highly efficient operation that has been built.
Now do gross margin. Or expand beyond a single quarter. And Tesla's FCF is higher because it is investing far less in CapEx and R&D today compared to BYD, as described above. See, it's very easy to cherrypick stats to show what you want to show. https://x.com/alojoh/status/19...
Big Tech companies investing heavily in AI CapEx right now are running free cash flow tens of billions p.a. below operating income, just like BYD. This is because they — like BYD in EVs — view AI a as a large growth opportunity and it takes significant CapEx to buildout
@GlennLuk He is also wrong: takes last three quarters, not four for his "year to date" numbers. So that gives a negative of 10 billion instead of a negative of 3.5 billion. Quite a difference, but it helps buffoons with their cope.
@s300felix The bigger mistake is conflating FCF for a company that is clearlyinvesting massively in growth CapEx as a proxy for operating profits and losses.
@GlennLuk Isn't this basically how Amazon operated for like 20 years?
@GlennLuk OpenAI would have lost yoy 50 billion USD then ..... With that logic, there would be no startup on earth 🤡🤡🤡
@GlennLuk Dont be scared by the BYD expansion in Europe and sales in Asia, competition is GOOD for the consumer. The company is ol and if not the gov will help it....just like US gov helps Tesla.
@GlennLuk “What is the point of this if the shareholders don’t get ALL the money?”
@GlennLuk Make it simpler. What is the CF/Capex ratio? Only then can one judge BYD's health.
@GlennLuk BYD also trying to kill most of its smaller rivals. There is a ongoing price war on the Chinese car market.
@GlennLuk 💯% ✅. The same people wrung their hands about $AMZN re-investing all their available cashflow into growth. BYD is simply following the same path to global dominance … but in EVs. It’s an arms race and if you stop investing like Tesla and the legacy autos… goodbye sweetheart
@GlennLuk The concept of long term negative cash flow for capacity building/economy of scale production is a foreign concept for most Americans that have been brain washed for quick short term profits.
@GlennLuk BYD is just copying Amazon playbook. The markets will reward it. he's a short seller
@GlennLuk I saw that, facepalmed, and was glad he blocked the replies. Also knew you would do a much more in depth reply that I could bother to do.
@GlennLuk GlennLuk nails it: BYD's 'losses' are working capital and CapEx adjustments. Their growth strategy requires this reinvestment - calling it failure misreads their ambition.
@GlennLuk He's just a $TSLA bull and China EV short
@GlennLuk Agree. But if the “reinvestment” were truly a good idea, the market would be cheering — and it’s not in BYD’s case.
@GlennLuk Talk to their suppliers. All getting squeezed by BYD, being used as interest free loan providers. Almost a year to get paid.