Comparison of Market Value Creation within Tesla Company and BYD Automobile Company

Abstract

In recent years, with the rise of a new round of technological revolution and industrial transformation, new energy vehicles have become the backbone of the transformation and upgrading of the automotive industry, and the new energy vehicle industry has also ushered in unprecedented development opportunities. In the new energy vehicle industry, Tesla and BYD electric vehicles are good industry representatives. This article analyses the difference in multiplier selection between Tesla and BYD through the key value-driven formula and pyramid decomposition. We choose value/NOPAT as the multiplier. Through calculations, we find that the predicted growth rates of Tesla and BYD are smaller than WACC and ROIC, and both companies generate value. The ROIC of Tesla and BYD are both greater than WACC, and the growth rate has increased. Their growth has produced meaningful economic benefits, leading to an increase in the market capitalization of both companies. Tesla's higher WACC reflects its higher financing costs, which can be lowered by increasing long-term debt and reducing equity capital. For any level of growth, increasing ROIC will always increase value, thereby reducing the investment capital required for growth. The higher return on capital of Tesla and BYD shows that the two companies have better economic returns on their own investment, and investors have less risk, so it is worth continuing to invest. From the results of pyramid decomposition, it can be found that the value creation of Tesla is higher than that of BYD. We find Tesla’s impact on value creation at g, 1-Expense/S, (FAt-1/S)⋅360, (Et-1/Ct-1), RE, RD⋅(1-t), greater than 0, the effect is positive. Among them, (Et-1/Ct-1) has the greatest impact on Tesla's value creation, which is 24.356, which is a positive impact. Tesla's value creation driven by (Et-1/Ct-1) is higher than that of BYD. Then the positive impact of 1-Expense/S is 8.5197. Then the positive impact of RE is 9.565, Tesla's value creation driven by 1-Expense/S and RE is higher than BYD. Tesla uses more equity, while BYD uses more debt, Tesla's equity cost and debt cost are higher, and WACC is higher than BYD. In the effect of (CAt- 1/S) ⋅ 360, (Dt-1/Ct-1), the effect of ROIC and IR on value creation is less than 0, and the effect is negative. Tesla's fixed assets/revenue ratio is higher than BYD's. Tesla's (Dt -1/Ct-1) is higher than BYD. Tesla generates more value from fixed assets, BYD generates more value from liquid assets. Among them, the negative impact of (Dt-1/Ct-1) on Tesla is -8.871. Tesla's value creation driven by (Dt-1/Ct-1) is not as good as BYD. Tesla's investment capital is higher than BYD's, Tesla's ROIC is higher than BYD's, and NOPAT invests more. So, Tesla should pay more attention to (Et-1/Ct-1), 1-Expense/S and (Dt-1/Ct-1), should increase (Et-1/Ct-1), reduce expenses, increase value.