Is Tesla's Leading Position in the Industry Challenged?

After both Tesla and BYD released their performance reports for the third quarter recently, many voices have emerged questioning Tesla's dominance in the electric vehicle market.

According to Tesla's announcement, the Q3 revenue stood at $23.4 billion, marking a 9% year-on-year increase but a 6% quarter-on-quarter decline, with a net profit of $1.853 billion, a staggering 44% decrease compared to last year.

Just two days prior to Tesla's announcement, BYD projected a net profit for the third quarter attributed to its shareholders ranging from CNY 9.546 to 11.546 billion, reflecting a year-on-year growth of 67.0% to 102.0%.

When observing the contrast in net profit, it's evident that they are moving in opposite directions

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Does this mean BYD is on track to surpass Tesla? In response to this question, Tesla remained reticent and did not provide a clear insight.

01 Did Price Reductions Weigh on Tesla's Revenue?

Tesla's quarterly earnings report indicated an operating margin of just 7.6% in Q3, down from 11.4% in Q1 and 9.6% in Q2 this year.

Tesla attributed this decline to increased operational costs driven by projects involving the Cybertruck, artificial intelligence, and other R&D investments.

Wang Liusheng, Chief Analyst of the automotive sector at China Merchants Securities, noted in an interview: "Tesla's profit decline is partly due to considerable price cuts this year, which naturally impacts their margins

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Moreover, this year saw a significant increase in R&D expenditures, particularly in robotics."

"The drop in Tesla's operating income can be attributed to the aggressive price cuts initiated in January, which have had a considerable impact," analyzed Zhang Xiang, Director of the New Energy Vehicle Technology Research Institute at Jiangxi University of Science and Technology.

He further elaborated that Tesla, as a pioneering enterprise in the industry, once enjoyed a significant early advantage with hardly any competitors, but with the rise of numerous Chinese companies, it is finding itself under increasing pressure

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Nowadays, brands like BYD, GAC Aion, and Great Wall are emerging, aggressively capturing market share, which contributes to the slowdown of Tesla's sales growth.

Clearly, revenue figures indicate that Tesla's price cuts have not secured a competitive edge in the market.

In response to the stiff competition, Tesla has been proactive; this year it announced multiple price cuts to boost salesHowever, financial reports show that these reductions have negatively impacted operating incomeWill Tesla continue its price-cutting strategy in the future?

Wang Liusheng provided some insights: "Reducing costs has always been a significant goal for Tesla

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As soon as their costs decrease, they are likely to lower prices again as long as feasible within acceptable limits."

Additionally, Wang noted that Tesla's third-quarter report only slightly fell short of expectationsThus, maintaining their sales target of 1.8 million units for the year doesn't appear particularly challenging.

02 BYD Could Surpass Tesla

On the other hand, BYD's third quarter forecast shows a net profit range of CNY 9.546 to 11.546 billion, representing an impressive year-on-year increase of 67.0% to 102.0%. The net profit excluding extraordinary items stands at CNY 8.605 to 10.505 billion, with a year-on-year increase of 61.29% to 96.9%. Furthermore, the net profit for the first three quarters is estimated between CNY 20.5 to 22.5 billion, illustrating a 120.16% to 141.64% growth.

The performance data indicates that BYD is consistently setting historical sales records for new energy vehicles and retaining its title as the global leader in NEV sales

After the reports of the third quarter performance for both companies, comparisons between the two have surged, with predictions suggesting that BYD may soon challenge Tesla to become the "King of Electric Vehicles."

Zhang Xiang believes that the reasons for BYD's sales increase stem from multiple factors: "Firstly, it offers a wide range of models, including the Dynasty, Ocean series, and high-end vehicles, which is a major advantageSecondly, BYD not only manufactures fully electric vehicles but also hybrids, which have been selling exceptionally well this yearLastly, BYD has mastered core technologies in batteries, chips, and motors, meaning production capacity is not a limiting factor."

After the Q3 reports from both BYD and Tesla, many began drawing comparisons between the two, with some forecasts stating BYD is poised to overtake Tesla as the "King of Electric Cars."

"I believe BYD can surpass Tesla

First, it offers two technology routes: fully electric and hybridSecond, BYD vehicles tend to be cheaper with better price-performance ratiosAdditionally, BYD outpaces Tesla in some performance aspects; for example, Tesla's best range is around 700 kilometers, whereas the official data for the BYD Song PLUS DM i indicates over 1,000 kilometers," Zhang shared his insights with the media.

Wang Liusheng further observed that while the electrification push in China remains resolute and supported by favorable policies, Tesla's production capacity in China is comparatively limitedThus, making direct comparisons at this stage might not be entirely appropriate.

Consequently, whether BYD can genuinely surpass Tesla will rely significantly on their performances in differing markets moving forward

Furthermore, he indicated that the realm of intelligence could become the next focal point of contention between the two companies.

In his view, the investment in intelligent technology could be a critical pivot for the future of the new energy vehicle marketThe advanced assistance driving systems, L3 level intelligent driving systems, and other intelligent features could become crucial selling points or considerations for customers moving forward.

As it stands, the future of new energy vehicles hinges on cost control and the application of intelligent technologies, and which automaker will emerge as a leader in this domain will require long-term observation