In light of the current climate crisis, initiatives towards corporate divestment, renewable energy, and cut-offs of greenhouse gas emissions have been on the rise.
The automobile industry is one of many that has had to adapt to these changing conditions. The electric car market is stronger than ever; it is growing and becoming a key player in both the automobile and renewable energy landscapes.
When we think of the electric car, most of us immediately think of stylish Tesla cars but there is another actor in the game that we should keep a close eye on – one that is getting more and more traction, and that is BYD.
What is BYD?
BYD is a Chinese owned company that originated as a battery supplier and producer. Since 2003 it has been largely engaged in the automobile business and its car products include both fuel engines and new energy.
Today, BYD is also engaged in battery manufacturing for various consumer electronics and energy storage systems.
Therefore, one of BYD’s strong suits is that it has the advantage of both producing or supplying batteries and semiconductors to the EV market, and thus also applying preferential treatment onto its own vehicles.
Another reason to keep a close eye on BYD’s rise in the EV market is its impressive accomplishments. Whilst Tesla has announced its buying opportunity of SolarCity, claiming that the company would be the first vertically integrated energy company offering end-to-end clean energy products to its customers, BYD has already achieved this.
Rivals Tesla and BYD are therefore not only competing in terms of profitability or market shares but also in terms of business sustainability, efficiency and desirability.
How can BYD compete with Tesla?
Musk’s $650bn company appears unbeatable. For several years now, Tesla has been the globally leading EV producer.
Tesla is not only dominant in the automobile industry but is now also a prominent part of Western pop culture, with countless songs making references to Tesla cars, and many Hollywood movies making use of Tesla cars in them.
Almost everyone knows Tesla, and almost everyone wants one. That is not to say that Tesla does not have other competitors; most people strive to own NIO’s – a premium automobile brand, rival to Tesla. But so far, Tesla has been the leading player in the EV game.
So, does BYD have what it takes to take over Tesla?
In terms of overall economic performance, Tesla is still leading the race. As NIO sold approximately 110,000 vehicles from January to April 2021, BYD sold around 150,000 and Tesla sold around 200,000.
Moreover, the average selling price of Tesla vehicles is above that of BYD, placing Tesla’s net profit of $720m in 2020 ahead of BYD’s $645m. Despite this gap, BYD is ahead of Tesla in terms of its operating margin.
Moreover, despite its less well-known status, BYD is catching up to Tesla in more ways than this.
Considering BYD’s initiatives to diversify its products from battery manufacturing, competing with Tesla’s battery supplier (CATL), to electric and plug-in hybrid passenger vehicles of trucks, cars and buses, we must ask: is Tesla falling behind? BYD is on a clear upward trend, having outsold Tesla passenger vehicles in 2020, and it is projected to grow even more.
So far, CATL is the second biggest EV battery manufacturer. However, as BYD develops more of its blade, hybrid and electric products, it is likely to gain ground on CATL. Indeed BYD is now ranked number five in the global market share of EV battery manufacturing, and it would be no surprise if they continued to rise up the rankings.
Moreover, although its battery production bases are located in China, BYD is increasingly engaged in efforts to take the company to the next level, setting up vehicle production bases on an international scale.
This includes bases in China, UK, Hungary, France and the USA. Although BYD’s main audience is in China, its strategic aim to penetrate the European market testifies to its potential in beating Tesla.
Partnerships and Alliances
BYD’s success is straightforward but its potential to sidestep Tesla is less so. Indeed, Tesla is a strong company, with a large range of car models, innovative products as well as resources and customers all over the globe.
Tesla is already well-established in the European market that BYD plans to enter. Elon Musk’s plan for a Tesla car to drive NASA astronauts to the first US crewed rocket launch in several years is only further evidence that highlights Tesla’s global reach.
Although BYD is a strong competitor when looking at productivity, sustainability and profitability, BYD’s international influence is not yet comparable to Tesla.
Perhaps BYD’s new brand deal with internationally recognised Toyota, its new products ranging from commercial, passenger, terrestrial to aerial transport vehicles, and entry in the European market could mark its shift from its largely Chinese focus to a global base of customers.
Also, changing relations between Tesla and the Chinese government might mark a shift in Tesla’s affluence in China. Since China is the world’s epicentre of the electric car market, newly imposed limits on Tesla production within China could significantly shift the scales of global influence in the Tesla vs BYD bid.
Although restrictions on foreign auto-making eased up in 2018, bringing about a huge opportunity for Tesla to establish its own factory in Shanghai, with a $1.6bn budget funding from Chinese banks, the US trade war in China, as well as growing restrictions imposed by the Chinese government on Tesla’s EV’s, may disrupt Tesla’s presence in China.
The Chinese state’s decision to ban Tesla EVs from government compounds and agencies may discourage Chinese customers from buying from Tesla and therefore, help BYD further consolidate its presence on the Chinese market. It may also discourage Chinese customers from buying from Tesla.
There is no doubt that BYD is a great buying opportunity for investment bankers all over the globe, as its innovative and EV stocks are gradually rising.
Today, BYD and Tesla stock prices almost mirror each other. Although Tesla remains the EV market leader, and EV stocks are fluctuating largely according to Tesla’s trends, Warren Buffet’s new investment in BYD could bring about a shift of power, influence and leadership within the automobile and consumer discretionary industry.
The question of whether BYD can beat Tesla therefore largely depends on how BYD will benefit from its long-term investments, new partnerships, and entry into new markets.