As the electric vehicle (EV) industry grows, both traditional automakers and emerging start-ups are vying for a piece of the market. However, when it comes to manufacturing electric vehicles at scale, two companies have truly stood out from the rest: Tesla (TSLA -2.04%) and BYD (BYDDY -2.04%).
At its current valuation of around $532 billion, Tesla is the most valuable automaker, and has become synonymous with the EV movement due to its prowess in mass-producing vehicles and world-class technology. A few spots below is the Chinese automaker BYD. Valued at around $102 billion, BYD has quickly made a name for itself by becoming the best-selling automaker in China.
According to an analysis by GlobalData, EV demand will expand at a compound annual rate of 15.9% between 2023 and 2035. As such, investors looking for stocks with long-term growth potential would be making a mistake to leave EV exposure out of their portfolios. But which company is a better buy now?
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The reigning champ meets a formidable challenger
BYD started out as a battery maker in the 1990s, and used that as the foundation upon which it has built its EV business. Batteries can often be the most challenging aspect of manufacturing EVs, so BYD's in-house battery development has allowed the company to optimize its supply chain and scale up mass production at low costs.
Recent metrics show how BYD's vertically integrated business model is helping the company close the gap on Tesla. Thanks to a record-breaking Q3, BYD surpassed Tesla on sales volume with 2,070,255 vehicles sold year to date, a 76% increase from the prior-year period. It is important to note that BYD manufactures both pure battery-powered EVs (BEVs) and plug-in hybrids (PHEVs), while Tesla only sells BEVs. Although BYD's production numbers account for both types of vehicles, its BEV production is on the verge of surpassing Tesla's as well. BEV sales for BYD totaled 1,048,413 units year to date, just a 23% difference.
Amidst the surge in production, in the first nine months of 2023, BYD's profits grew by nearly 142% year over year to more than $3 billion. During the same period, Tesla's profits decreased by 13% due to increasing costs and its decisions to cut vehicle prices as part of its ongoing price war. As a result of BYD's successful run and Tesla's short-term challenges, BYD now boasts higher gross profit margins than Tesla, a nearly unthinkable situation just a few years ago.
TSLA Gross Profit Margin (Quarterly) data by YCharts.
BYD has its sights set on markets beyond China. Production is set to commence at a new factory in Thailand in 2024, which will help BYD access Southeast Asian markets. In late June, the company revealed its plan to build a new plant in Brazil, while deliveries to Mexico recently began as part of the company's broader strategy to expand its reach in Latin America.
Furthermore, BYD already has a presence in countries such as Japan, India, Malaysia, Australia, and Singapore. While exports remain a small share of its sales, they are up sharply considering that they were almost nonexistent in 2022.
The tale of the tape
BYD's ascension to the top of the EV market has been nothing short of remarkable. In a market where most legacy automakers and start-ups are struggling to find profits selling EVs, BYD is building considerable market share quickly.
With production, deliveries, and financial measures nearly eclipsing Tesla, along with planned international expansion, it would be plausible to assume that BYD is a better buy. Especially when considering it currently trades at a price to earnings about one-half of Tesla.
However, it is important to note that Tesla's business scope extends far beyond that of just an EV manufacturer. While BYD has business ventures related to battery production, commercial vehicles, and even electric forklifts, Tesla has established itself in multiple fields, including artificial intelligence (AI), robotics, energy storage solutions, and autonomous driving.
Investors seeking a company that solely focuses on EVs should consider BYD as a potential investment opportunity. BYD is currently expanding its operations and has an efficient and scalable business model that integrates vertically, which suggests that the company is likely to achieve success. In fact, BYD may even surpass Tesla in the coming years.
But Tesla's combination of technological endeavors would expose investors to several burgeoning industries brimming with potential. While Tesla's success in the electric vehicle industry is expected to continue, making it an attractive investment opportunity on its own, the company's potential for long-term growth through autonomous driving, robotics, and AI makes it the kind of growth stock investors dream about.
