The competition between the two leading companies in the electric vehicle industry, China and the United States, is becoming increasingly fierce.
BYD (002594. SZ), which disclosed its semi annual report on August 29th, has achieved a revenue of 176.2 billion yuan in the second quarter alone, approaching Tesla's (TSLA) $25.5 billion (calculated at an average exchange rate of 7.21 USD to RMB in the second quarter, it is 181 billion yuan).
BYD achieved nearly 1 million sales in a single quarter, while Tesla had less than 450000 vehicles.
However, currently BYD's market value (725.6 billion yuan) is still only about one seventh of Tesla's (684 billion US dollars); On the other hand, the gross profit margins of BYD and Tesla were 18.69% and 18% respectively. In terms of net profit attributable to shareholders of the parent company in the second quarter, BYD was 9.062 billion yuan and Tesla was 1.478 billion US dollars, further narrowing the gap between the two.
BYD accelerates its overseas expansion, while Tesla's sales decline
Against the backdrop of a more intense price war in the automotive industry in the second quarter of 2024, BYD's sales continue to increase, while Tesla's lead in revenue is no longer significant.
According to Wu Hao, an analyst at Xinda Securities, BYD achieved a revenue of 176.18 billion yuan in the second quarter, a year-on-year increase of 25.9%; The net profit attributable to the parent company was 9.062 billion yuan, a year-on-year increase of 32.8%. The sales volume in a single quarter was 987000 vehicles, a year-on-year increase of 40.2%. However, the revenue from individual vehicles was 136000 yuan, a year-on-year decrease of 13.2%; The net profit of the bicycle was 8000 yuan, a year-on-year increase of 0.83%, further reflecting the cost advantage brought by the scale effect and high integration of the supply chain.
Yang Yang, an analyst at Hualong Securities, said that looking ahead to the second half of the year, BYD has abundant reserves of high-end car models, and the intensive listing is expected to achieve a large volume. The average price of bicycles is expected to increase in the second half of 2024. In addition, the overseas layout continues to increase. In terms of production capacity, the Thai factory has been put into production in July 2024. The factories in Brazil, Türkiye, Hungary and other places are expected to gradually settle down. Localized production is expected to promote market share.
On July 24th, Tesla released its Q2 2024 financial report. The report shows that the second quarter revenue was $25.5 billion, an increase of 2% compared to the same period last year's $24.927 billion; Net profit was 1.494 billion US dollars, a decrease of 42.8% from 2.614 billion US dollars in the same period last year; The total gross profit margin was 18%, a slight decrease of 0.2% year-on-year; The net profit attributable to common shareholders was $1.478 billion, a year-on-year decrease of 45%.
Tesla's global sales were 444000 vehicles, a decrease of 22000 vehicles year-on-year, a decrease of 4.8%.
During the earnings call on the early morning of July 24th, Tesla CEO Elon Musk stated that he will apply for regulatory approval in Europe and China to implement supervised FSD, and is expected to receive approval before the end of this year. It is expected that a more affordable model will be delivered in the first half of 2025, but he does not want to disclose any details about future cars as it may affect recent sales.
In addition, Tesla Robotaxi is scheduled to be released on October 10th. Previously, Musk had posted on his personal social media platform that Tesla Robotaxi would be launched on August 8th. Musk stated that the reason for the delayed release of the car is his request for changes to the vehicle design. He believes that Robotaxi vehicles can be used 24/7 and can become full-time members or part-time contributors to the fleet, with owners directly sharing the profits with Tesla.
Lin Jiayi, the general manager of Xuanjia Fund, told First Financial reporters that BYD models cover almost all types, while Tesla models are not many, mainly Model 3, Model Y and other models. The large-scale procurement of components has enabled Tesla to control supply chain costs well; Overall, due to BYD's larger scale, most of its supply chain is self supplied, and cost control is gradually improving. If Tesla's new products do not sell well in the future, the valuation logic will be disrupted and return to the downward trend of automotive stocks.
Net profit gradually narrowing
In terms of net profit, BYD achieved a net profit attributable to its parent company of 9.06 billion yuan in the second quarter, a year-on-year increase of 32.8%. Tesla's net profit was $1.494 billion, a decrease of 42.8% from $2.614 billion in the same period last year, and the distance between the two is gradually approaching.
On September 1st, at the 2024 World Power Battery Conference, BYD CTO Sun Huajun discussed two aspects of cost reduction. On the one hand, we need to learn from Toyota's model, extreme manufacturing, and continuous improvement. "Every small improvement is our opportunity to reduce costs; On the other hand, he shared BYD's philosophy of "technology is king, innovation is the foundation". What does innovation mean? He believes that innovation serves to reduce costs, and the essence of technological innovation is to lower costs.
Regarding future business risks, BYD stated in its semi annual report that its main business operates in highly competitive industries and faces fierce market competition both domestically and internationally. As the best solution to address air pollution and energy shortages, new energy vehicles have been introduced by national and local governments as a series of industry support policies to support the sustainable development of the new energy vehicle industry. If there are changes or adjustments in relevant policies in the future, it may affect the level of policy support enjoyed by the group and may have a certain impact on the operation of its main business in the short term. In addition, the main raw materials required for the company's production include steel, plastic, and other metal raw materials such as lithium, copper, etc. The fluctuation of raw material prices will directly affect the production costs of the group's main business, and thus have a certain impact on the group's operating performance.
Tesla mentioned in its financial report that despite facing fierce competition and continuous technological investment, the company still achieved record breaking total revenue. However, the decline in profits was mainly affected by increased operating expenses from AI projects, reduced car deliveries and average selling prices, as well as related restructuring costs.
China CITIC Securities stated that Tesla's operating profit for bicycles in the second quarter of 2024 was $3300 per vehicle, a year-on-year decrease of 43% and a month on month increase of 14%. This was mainly due to a 11% month on month decrease in fixed costs and a 1% month on month increase in variable costs to $33900 per vehicle; In addition, Tesla's sales and R&D expense ratios for the second quarter were 5.0% and 4.2%, respectively, a decrease of 1.4 percentage points and 1.2 percentage points compared to the previous quarter.
On July 30th, according to the National Highway Traffic Safety Administration (NHTSA) of the United States, Tesla launched a large-scale recall, involving 1.85 million Model 3, Model S, Model X from 2021 to 2024 and Model Y from 2020 to 2024. The reason for Tesla's large-scale recall this time is that the software may not be able to detect the engine hood being unlocked, and the unlocked engine hood may be completely opened, obstructing the driver's line of sight and increasing the risk of collision. This recall will be completed through remote upgrade (OTA).
Large valuation gap
BYD's latest price to earnings ratio (TTM) is 22 times, while Tesla has reached 60 times, and well-known investors also have uncertain views on both.
Cathie Wood, the head of Ark Investment Management, a heavily invested company in Tesla, recently stated in an interview that Tesla will achieve a significant increase in stock price through the launch of Robotaxi business, with a value appreciation of about 10 times. She believes that Tesla will transform from an "electric car manufacturer" to a supplier of autonomous taxi services, which will result in substantial profits.
On the evening of July 22, the Hong Kong Stock Exchange disclosed that Berkshire Hathaway, owned by Warren Buffett, sold 1.3955 million shares of BYD on July 16, 2024, and still holds 4.94% of H shares, with a total of 54.2 million shares. If Buffett reduces his holdings of BYD again, there is no need to continue disclosing. Some industry insiders believe that this represents Buffett's profit taking from his investment in BYD over the past decade. Buffett may have concerns about future global support policies for electric vehicles, or he may consider that BYD's valuation is not low compared to other holdings.
Regarding the significant difference in valuation between the two giants, Cheese Fund researcher Fu Wenhao believes that on the one hand, the valuation difference between the two companies is due to the relatively lower risk appetite in the domestic market compared to the US stock market, and on the other hand, Tesla has more obvious advantages in globalization and the accumulation of research and development in intelligent driving. Lin Jiayi believes that currently, the US market is still in the stage of capital chasing gains, while the domestic market is in a relatively pessimistic stage, and the cross market scissors gap still exists; In addition, electric vehicle companies generally have high valuations, and the future growth rate will gradually slow down after the penetration rate increases. As the price war intensifies, the expected returns are indeed decreasing.