Electric Vehicles: BYD Surpasses Tesla in Sales – Margins Under Pressure

The leading Chinese electric vehicle manufacturer BYD achieved higher revenues than its American rival Tesla for the first time in the third quarter. While BYD recorded a revenue of 201 billion yuan (approximately 28.2 billion US dollars), Tesla was slightly behind with 25.2 billion US dollars. During this period, BYD sold a record 1.1 million vehicles, supported by new subsidies from the Chinese government for electric vehicles. However, the revenue growth of 24 percent came at the expense of the company's gross margins, which fell from 22.1 percent in the previous year to 21.9 percent. Nevertheless, net profit increased by 11.5 percent to 11.6 billion yuan. Instead of offering direct discounts, BYD has launched new models with greater range and more advanced features at lower prices in recent months. This strategy helped the company solidify its market leadership despite intense price competition, though it reduced the net profit per vehicle. The ongoing price competition in the world's largest automotive market is squeezing the margins of both domestic and foreign car manufacturers. For instance, Volkswagen warned that the operating profit of its Chinese joint ventures in 2024 could be at the lower end of forecasts at 1.6 billion euros. Thanks to high vertical integration, BYD still has a significant lead with a gross margin of 21.9 percent compared to Tesla, which stands at 17 percent, as well as the Chinese competitors Zeekr with 14.2 percent and Xpeng with 6.4 percent. Analysts emphasize that international expansion is crucial for BYD's future growth, especially given increasing protectionist tendencies in the West. However, despite rapid overseas expansion, with the opening of a new plant in Thailand, exports accounted for only 7.9 percent of September's monthly revenue, compared to 9.8 percent the previous year. Concerns about BYD's export capabilities may increase in the short term, as the EU imposes additional tariffs of 17 percent on imported BYD electric vehicles. The company's shares in Hong Kong closed 0.7 percent weaker before the announcement of the results.