BYD Narrowing the Gap as Tesla Faces Profit Decline in Intensifying EV Battle

The competition between China's BYD and the U.S.'s Tesla in the electric vehicle (EV) sector is intensifying. On August 29, BYD (002594.SZ) disclosed its first-half-year report, showing that its second-quarter revenue reached 176.2 billion yuan, closely approaching Tesla's $25.5 billion (approximately 181 billion yuan, based on an average exchange rate of 7.21 for the quarter).

BYD achieved nearly 1 million unit sales in a single quarter, whereas Tesla sold fewer than 450,000 units. Despite this strong performance, BYD’s market value stands at 725.6 billion yuan, only about one-seventh of Tesla’s $684 billion.

In terms of gross margin, BYD and Tesla are quite close, with 18.69% and 18%, respectively. Regarding net profit attributable to stockholders, BYD reported 9.062 billion yuan for the second quarter, while Tesla recorded $1.478 billion, indicating a narrowing gap.

As the price war in the auto industry intensifies, BYD continues to push its sales aggressively, reducing Tesla's revenue lead. Analyst Wu Hao projected that in the second quarter, BYD achieved 176.18 billion yuan in revenue, a 25.9% year-on-year increase. Net profit attributable to shareholders surged by 32.8% to 9.062 billion yuan, with a quarterly sales volume reaching 987,000 vehicles, up 40.2% year-on-year.

Looking ahead to the second half of the year, BYD has a strong lineup of high-end models ready for release, which may drive up the average selling price. Furthermore, BYD's accelerated international expansion continues, with its Thailand factory starting production in July 2024, and potential new plants in Brazil, Turkey, and Hungary. These moves towards localized production could boost market share.

On July 24, Tesla released its Q2 2024 financial report, revealing revenues of $25.5 billion, a slight increase from $24.927 billion in the same period last year. Net profit stood at $1.494 billion, a sharp decline of 42.8% year-on-year. The total gross margin was 18%, down 0.2% year-on-year. The net profit attributable to common stockholders was $1.478 billion, down 45% year-on-year.

Tesla’s global sales reached 444,000 vehicles, down 4.8% year-on-year. CEO Elon Musk has indicated plans to seek regulatory approval in Europe and China for supervised Full Self-Driving (FSD), and he expects a more affordable model to be unveiled by mid-2025.

While BYD's net profit in Q2 grew by 32.8%, reaching 9.062 billion yuan, Tesla's net profit fell by 42.8% to $1.494 billion, highlighting the contrasting trajectories of the two companies.

At the 2024 World New Energy Vehicle Conference on September 1, BYD’s CTO Sun Huajun discussed the importance of reducing costs through extreme manufacturing methods and continuous improvement, as well as leveraging technological innovation to achieve lower costs.

In its semi-annual report, BYD cautioned about potential risks in its business environment. Major uncertainties include changes in government policies supporting the EV sector and fluctuations in raw material prices, such as steel, plastics, and metals like lithium and copper. These could directly impact production costs and company operations.

Tesla also acknowledged significant competition and rising operational costs tied to its AI projects. Although achieving record revenue, the company attributed profit declines to increased costs, reduced vehicle deliveries, and lower average selling prices.

BYD's latest trailing twelve-month (TTM) price-to-earnings (P/E) ratio stands at 22, compared with Tesla’s 60. The stark difference in market valuation is subject to investor sentiment and market risks in their respective regions.

Prominent investors have divergent views on the two automakers. Some believe that Tesla's Robotaxi business could lead to significant growth, while others suggest that BYD's comprehensive model range presents a competitive advantage.