How did BYD dethrone Tesla

A new era of the clash between e-vehicle titans is beginning

09:00 | 9 февруари 2024
Обновен: 22:35 | 10 февруари 2024
Снимка: Bloomberg LP
Снимка: Bloomberg LP

By Veselina Spasova

According to an old saying, “he who laughs last laughs longest”. When it comes to the billionaire Elon Musk, probably he never thought that he would give up his crown because of a company whose ambitions he recently doubted as an investor.

In 2011, Musk commented on the ambitions of BYD with irony and even mockingly. “I don't think it's particularly attractive”, he said about the Chinese automotive company, “the technology is not very strong”. In an interview for Bloomberg he stated: “And BYD as a company has pretty severe problems in their home turf in China. So I think their focus is, and rightly should be, on making sure they don’t die in China.”

Paradoxically, only one decade later, the Asian manufacturer is far from dying. It’s prevailing over Tesla, instead. The Chinese company became the biggest EV industry surpassing the American business group. As of today, the well-known entrepreneur recognises the error of underestimating severely the Chinese brand.

Elon Musk’s company didn’t give up its leadership in sales without resistance, but the results speak in a categorical manner. For the first time in its history, the Chinese e-cars manufacturer reports such a record. The supply of the last quarter of last year presents figures that give reason to celebrate, leaving behind the main competitor.

The American concern reports slightly more than 484 thousand sales of vehicles for the period October-December. It is an excellent result which exceeds the expectations with about 11 thousand cars. The market estimations were surpassed and the annual sales hit a record, which was very good news. However, this achievement proved insufficient to keep Tesla’s crown. In the same period, BYD sold 42 thousand cars more, meaning that the total number of e-cars sold reached 526 thousand.

It was a hard blow for Tesla, but it was a giant leap for the world of EV industry and its progress. Dethroning Tesla is a clear sign for the restructuring of the competition in the field of electric cars. The achievements are the natural result of the rise of the Chinese EV manufacturers. And the leader of this process is exactly the group whose name is barely known and which Musk sarcastically mocked 10 years ago.

Let’s look at the performance of these companies during the whole 2023. Tesla’s supply has prevailed over BYD’s for the last 12 months, given that the Chinese company sold 3,02 million cars in 2023, but 1,4 million of them were plug-in hybrids.

BYD has deserved the victory in China because of a remarkable acceleration of sales. Their success was supported also by the increase of the Chinese export to foreign markets, the most important of which reveals to be Europe. Thus, competition came even harder on Tesla, although the American giant has not given up on growth yet. Tesla is keeping the first place in sales, in spite of BYD’s excellent financial result. The company’s supply proves the effect of the attractive price theory which proves that discounts work in favour of the Chinese producers.

However, market analysts consider that the heated battle shall have negative effects on the margins of both companies. Despite the risk, BYD applies the theory that success requires sacrifice. For the Asian manufacturer of e-cars, the stake is rather high, adding to the growth of the market share the promotion of the very image and the increase of the level of recognition of BYD.

Chinese success in the EV industry is based on the relatively lower cost of the final product. BYD’s electric cars are gaining an important advantage in Europe mostly because of their attractive price. Users prefer a cheaper and smarter car and thus place significant pressure on EV manufacturers.

Another BYD key advantage is the established own delivery network. One of the factors for success is the fact that the company never abandoned its initial business – the production of batteries. In the problematic macroeconomic frame regarding delivery and production of components, and due to increasing expense levels, this turned out to be a major advantage.

BYD’s success is due to good decisions and successful development plans. The company’s wide industrial profile gives it priority compared to the competitors. Warren Buffet’s support, together with the vertical integration added prestige and achieving excellence. Instead of counting on other entities for the necessary parts, the Chinese manufacturer opted for developing a cheap formula for producing electric cars which made it possible to offer a wide range of accessible alternative drive vehicles later on.

The clash of e-car giants is entering a new era. Basically, the market is going to pass the crown to a new ambitious king who has been particularly focused on finding foreign markets fast. The intensity of the struggle in the field of electric cars reveals the high expectations of the automotive industries regarding the EV. It looks like the bets on the market competition in favour of China prevail.

The Red Dragon needed quite some time to transform the alternative drive vehicles in its main advantage. State investments of billions of yuan in plans to build supply chains focused on developing technologies on local basis. Behind success, the measures taken by the second most powerful world economy to support the industry may be highlighted. Steps for gaining advantage and building the price potential of the Chinese EV manufacturers became priority and thus made them a decent global competitor with extraordinary achievements.

BYD set a sales record and also expanded its presence, conquering new markets. Furthermore, the Chinese manufacturer is just a step away from joining the group of formerly anonymous car brands that took over the world.

Only a year ago, the e-car sector was exposed to serious pressure and many competitors experienced troubles. The war of prices destroyed a number of entities, but BYD prospered. While Tesla managed to get out of years of recession and obtain positive results only in 2019, the Chinese company barely reported any negative operational income and is often given as a good example of return on equity.

Under these conditions, Tesla’s level of supply is much higher compared to other American companies. Some smaller competitors’ market evaluation, such as Rivian’s, fall due to the deceleration of the demand for electric vehicles. Decreased rhythm of sales obliged even traditional manufacturers of the class of General Motors to be cautious. The European giant VW modified its plans for developing EV business, too.

The most significant weakness of BYD at present is its way too aggressive expansion. The company grew and advanced very fast. A superstitious and a pessimist would argue that it’s not a good sign. But this is a small negative factor compared to the plenty of positive indicators.

The Chinese company, formerly anonymous worldwide, is about to change drastically its status. Although the market capitalisation of BYD is currently about 10 times smaller than Tesla’s, the company has successfully become the biggest electric cars manufacturer. As far as alternative drive vehicles are concerned, this moment makes history.

This situation is a milestone which reveals a small part of the growth potential of BYD. Long-term ambitions to become the Chinese automotive leader have been fulfilled. The company which started as a producer of batteries has already become an electric car giant. And next step shall logically be to conquer the global market.

THE BOTTOM LINE Although the market capitalisation of BYD is currently about 10 times smaller than Tesla’s, the company has successfully become the biggest electric cars manufacturer