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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When Tesla and BYD sales numbers are released at the end of each quarter, investor focus has inevitably been on which maker has topped the list for deliveries of electric vehicles to customers.
It is a tight, fluctuating race. In the latest quarter to the end of June, Tesla retained the bragging rights of first position even though deliveries declined 5 per cent. The Elon Musk-controlled group delivered 443,956 vehicles compared with 426,039 battery-powered EVs from its Chinese rival.
But comparing Tesla and BYD based on sales volume is a metric that matters much less now than it used to in determining the outlook for the companies’ stock prices.
The problem with continuing to use the number of deliveries as a key metric for the sector is that it does not bring in other important measures, including unit price and margins.
The two companies are currently competing at different price ranges. The starting price of Tesla’s cheapest model at around $31,900 in China is more than triple the sticker price of BYD’s lowest-priced model. That is the Seagull, an all-electric hatchback starting at $9,900, which surpassed 280,000 units in sales last year, accounting for nearly a fifth of all BYD battery EVs sold last year. Tesla’s higher prices help it take the lead in another metric with operating margins of more than 9 per cent, compared with 5 per cent for BYD. And in 2023, Tesla made some $82.4bn in automotive revenues in while BYD reported $66.5bn.
A better takeaway from the latest sales figures is that price is becoming an increasingly important driver of growth for EV makers.
BYD deliveries reached a new record in the second quarter, shortly after it slashed prices of nearly all its models in late March. And a closer look at Tesla’s sales shows that even as the total figure fell, deliveries of its two cheapest models — the Model 3 sedan and the Model Y — were 7 per cent higher than market expectations. Meanwhile, deliveries of its higher-priced models, the Model S, Model X and its Cybertruck, missed market expectations by nearly 30 per cent, according to Bank of America.
Offering EVs that cover a wide price range is especially important for future growth because many of the fastest-growing EV markets in the world are emerging market countries. For example, EV sales in Thailand, south-east Asia’s second-largest economy, grew more than seven-fold last year.
BYD, which has EVs at multiple price points, is enjoying most of that windfall, already accounting for nearly half of the EV market share in the country. Its price advantage, which comes from a vertically integrated supply chain in which it makes its own batteries, was further boosted last year as the cost of making battery cells fell. The average selling price of Chinese power cells fell by more than 50 per cent between the start of 2023 and December
Surging BYD exports, which more than quadrupled last year, will add to the case for Tesla to expand its portfolio to the lower price bracket.
There is growing urgency to do so. In China, which accounts for 60 per cent of global EV sales, Tesla sales have been especially weak with sales of its China-made EVs falling 24 per cent in June from a year earlier, according to data from the China Passenger Car Association
An ageing model line-up and Tesla’s edge in software is starting to be challenged by Chinese rivals such as Nio, which produces EVs that are equipped with self-driving software and intelligent driving technology. Nio sales have been catching up much faster than expected, with vehicle deliveries more than doubling in the second quarter. Moreover, differentiation through battery range is becoming difficult with even BYD’s lowest-priced Seagull EV offering a reported range of up to 405km on a single charge.
Shares of Tesla have gained more than 40 per cent in the past month and now trade at more than 90 times forward earnings, a steep premium to BYD’s 18 times. Part of that reflects expectations for its other fast-growing businesses, including battery storage systems. But as the richest EV markets become increasingly saturated, a wider price range for its models would help it better justify the premium valuation.
