As the electric vehicle (EV) market continues to evolve, the spotlight is on Chinese EV manufacturer BYD Co Ltd, backed by Warren Buffett, challenging the dominance of American EV giant Tesla Inc. Here’s a closer look at why BYD might be emerging as a formidable competitor in the EV landscape.
Diversification in Electric Vehicles: BYD stands out by manufacturing a variety of electric vehicles, including battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs). This diversification contrasts with Tesla’s focus solely on BEVs, showcasing BYD’s adaptability to different segments of the EV market.
Impressive Sales Figures: In the third quarter, BYD shipped around 432,000 BEVs, closely trailing Tesla’s 435,000 units. Analysts predict BYD to surpass Tesla in BEV sales during the fourth quarter, with estimates reaching beyond Tesla’s projected 475,000 units. This surge in sales is part of BYD’s broader success, with approximately 2.8 million passenger vehicles sold by November, marking a substantial 70% increase from the previous year.
Financial Performance and Market Valuation: Comparatively, both BYD and Tesla recorded similar operating profits, around $1.7 billion, with an operating profit margin of under 8% in the last quarter. However, the market capitalization gap is significant, with BYD at $76.5 billion and Tesla towering at $809 billion. The report attributes this difference to the geographical origin, as BYD is based in Shenzhen, while Tesla operates from Austin. U.S. stocks often command higher valuations due to differences in market liquidity, regulation, and country-specific risks.
Market Perspective and Analyst Ratings: In the Shanghai Composite, stocks trade at roughly 10 times estimated 2024 earnings, while those in the S&P 500 trade for double that. Despite the valuation gap, over 90% of analysts covering BYD rate the stock as a “buy.” The Future Fund Managing Partner Gary Black considers Tesla and BYD as the only two investable EV companies currently available, emphasizing their distinctive profitability strategies.
