Today I made BYD (BYDFF) the eighth pick in my Special Report 10 GREATER Growth Stocks. Here’s what I wrote in my post on JubakAm.com.

Pick #8: BYD (BYDDF). I know; I know. What’s a Chinese stock doing on this list? It’s here because BYD, not Tesla (TSLA) is the big growth story in electric vehicles and not just for this month–but for years. And because I can see catalysts that are about to power this stock higher. Morningstar calculates that BYD is 20% undervalued right now. Because this is a China stock we’ll need to take a deep look at valuation later in this post. But first, the growth story.

BYD, which stands for “Build your Dreams”, is one of the largest electric vehicle players in the world. And you may have never even heard of it or thought about putting it in your portfolio. I think that’s true for a lot of U.S. investors–but that’s about to change. Which is one reason to buy the stock now. If you count both pure battery electric vehicles and plug-in electric/combustion engine hybrids BYD is, by sales, the biggest electric vehicle company in the world . If you just only count electric vehicles, BYD is the second largest electric vehicle company, trailing Tesla. But BYD is growing faster than Tesla. Much faster. During the most recent quarter, Tesla saw its deliveries rise by 27% year over year to hit 435,000 vehicles. That’s an impressive growth rate. But in the same period BYD’s total deliveries hit 824,000 vehicles (including hybrids) and electric vehicle sales (that is not including hybrids) rose by almost 70% to a total of 432,000 vehicles. Think that BYD might overtake Tesla by deliveries sometime in the next few quarters? But what’s more impressive to me than raw sales growth is that while Tesla is sustaining its growth rate by cutting its margins, BYD is achieving faster growth while increasing margins. Tesla’s gross margin peaked in 2022 and was just 18% at the end of the most recent quarter. Meanwhile, BYD’s margin has moved up to a little more than 22%, or about 400 basis points above Tesla’s margin. Tesla is still some what more profitable than BYD but that looks likely to change relatively soon. So what’s the secret sauce for BYD? How about cost? The company began life as a battery maker and still makes its own batteries, which gives it control of its supply chain that no other electric vehicle maker can match. Besides manufacturing batteries for its own cars, BYD sells batteries to other electric vehicle makers. The company also makes its own semiconductors. Last year BYD launched its Seal and Dolphin models to go against Tesla’s Model 3 and Model y. Since about 75% of Seal components are manufactured in-house, BYD’s production costs are about 15% lower than for Tesla’s Model 3 produced in the company’s Shanghai Gigafactory, according to UBS. The cost differential is even higher for BYD versus, say, Volkswagen. UBS found that the BYD Seal is about 35% cheaper to make than similar Volkswagen models. So what is BYD doing with its cost edge? Aggressively rolling out new models. The company plans to unveil at least six new models in 2023-2024 in addition to the Dolphin and Seal models. And to expand aggressively into international markets. Two years after first announcing plans to sell passenger vehicles overseas, BYD now has growing sales in Brazil, Australia, Japan and Southeast Asia. In September, BYD’s exports of passenger cars reached 280,000 units, 2.6 times more than in the same month a year earlier and making up 9.8% of overall sales. Importantly, in terms of news flow and mind-share with investors, all this progress at BYD is about to become very, very obvious. BYD is steadily climbing up the ranks of global automakers. In October BYD sold more automobiles than Nissan Motor Company in a month for the first tine ever. Sometime in 2024 BYD is likely to take over first place in electric vehicle sales from Tesla. And in the coming year, BYD’s rapid introduction of new models that undercut Tesla on price but over-deliver on profit margin will raise eyebrows among stock analysts who will be forced to make comparisons with Tesla’s slow product introductions. And now to that pesky issue of valuation. BYD’s forward price-to-earnings ratio is only 22 compared to about 56 for Tesla. (Strong third quarter earnings, with sales topping $22.1 billion, a 38.5% increase, suggest that the company will be able to beat analyst earrings projections in future quarters.) The company’s ADR (American Depositary Receipt) is down 12.2% in the last three months on a general pull back in electric vehicle stocks and news that Warren Buffett, a long-time investor, has sold some shares. So how much of a discount to fair market value–which shows the ADRs to be undervalued by 20% or so–or to my enthusiasm about the company’s longer-term prospects do you apply because BYD is a Chinese company? There is absolutely no guarantee that the Chinese government won’t decide to do something overnight that would send the stock tumbling. I believe that’s unlikely, however, since BYD’s big plans for overseas sales fit right into the government’s ambitions for increasing China’s exports as a (partial) cure for a slow domestic economy. Tomorrow, December 29, I’m adding the ADRs to my 12-18 month Jubak Picks Portfolio, to my long-term 50 Stocks Portfolio, and to my Volatility Portfolio (on JubakAM.com.)