The adoption of electric vehicles (EVs) stands out as one of the most unmistakable trends in today's landscape of technological advancements. With analysts projecting that by 2030, two out of every three cars sold globally will be an EV, investing in the industry holds serious potential.
But that doesn't mean just any EV company deserves a spot in your portfolio. When it comes to EV manufacturers, there are plenty of pretenders and just a few legitimate contenders. For investors looking to grab shares of the best the industry has to offer, it's time to break down why Tesla (TSLA -1.11%) and BYD (BYDDY 4.08%) are deserving candidates to consider now.
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The reigning EV champ brings more to the table
Over the past decade, few other companies have pushed the EV industry forward like Tesla. Its perfection of the supply chain has helped Tesla become synonymous with EVs and the world's most valuable automaker.
Tesla's long-term valuation is straightforward to recognize from an EV angle. It produces more electric cars per year than any other company and continues to increase its capacity. With construction slated to begin at a new factory in Mexico in 2024 and potential locations in Thailand and India, Tesla's reach is truly becoming global.
Yet, Tesla's most attractive long-term growth aspect might be related to something other than EVs. Tesla's historic success has helped it build formidable financial strength that allows it to invest in research and development of new technologies, a luxury other automakers can't afford. With $26 billion in cash and equivalents, the company is busy refining cutting-edge technology such as autonomous driving, artificial intelligence, and its humanoid robot, Optimus.
Each of these endeavors alone holds the promise to generate significant future revenue, yet Tesla should benefit from all three. As a clear beneficiary of EV adoption, plus its role in advancing technology that sounds like it is out of a sci-fi movie, few other companies hold as much long-term potential as Tesla.
A serious challenger gaining momentum
While Tesla has enjoyed a comfortable lead at the top of the EV industry, the gap is closing. On its heels is China's leading auto manufacturer, BYD. Founded initially as a battery producer in the 1990s, BYD has leveraged this expertise to solve the most challenging aspect of the EV supply chain.
The company boasts an impressive vertically integrated business model that manufactures almost all components, not just batteries, entirely in-house. Add it all up, and what usually takes the average automaker around four years from start to finish takes BYD just 18 months. Not to mention, BYD can sell cars for as low as $11,000.
Over the last year, BYD's total production has increased by more than 75%, profits have risen by nearly 142%, and margins are now better than Tesla's. This type of growth can be difficult to maintain, but by all accounts, it looks like it will continue.
Drawing on its success in the highly competitive Chinese market, BYD is now setting its sights on expanding operations internationally. The company has already established a significant presence in several Asian-Pacific countries, including Japan, India, Malaysia, Australia, and Singapore, and is actively pursuing plans to strengthen its market position in the region.
Moreover, BYD is expanding into emerging markets by constructing new factories in Brazil and Thailand. The company also recently commenced deliveries in Mexico as part of its broader focus on Latin America. With a diverse range of vehicles available at low price points, BYD is well-positioned for success in various markets worldwide, a problem that Tesla has yet to solve fully.
While it's true that Tesla has an edge in terms of technological advancements, don't count out BYD. With a business model that's nothing short of impressive and plans to solidify its presence abroad, it's hard not to see the potential for long-term success. In fact, it wouldn't be all that surprising if BYD eventually emerged as the leading electric vehicle manufacturer one day.
