- Electric car maker set to overtake Tesla
- Both hold a 17% global market share
- Buffett and Munger early converts
Next year is likely to mark a turning point in the global EV (electric vehicle) market, with relatively unknown Chinese manufacturer BYD (1211:HSE) overtaking the current leader Tesla (TSLA:NASDAQ) in terms of units sold.
Even though BYD barely has a presence in the US market, due to punitively high tariffs on Chinese imports to protect domestic jobs, the firm sells enough vehicles in China – the world’s biggest EV market – and in exports to other countries to go toe-to-toe with Tesla.
CHEAP AND CHEERFUL
The main reason BYD has been so successful in taking market share is its vehicles are cheap but they are not ‘built down to a price’, so they still have all the features buyers would expect.
According to Bloomberg, after carrying out a ‘tear-down’ of a BYD Seal saloon, the auto research team at Swiss bank UBS estimate the Chinese maker has a 25% cost advantage over its competitors, while they see Chinese manufacturers together controlling around a third of the global car market by the end of this decade.
Another reason for BYD’s success, especially in China, has been the scale of government subsidies giving buyers and manufacturers a hefty financial incentive to go electric.
Meanwhile, Tesla sales have slowed with founder Elon Muck claiming high interest rates are preventing customers from being able to afford his premium-priced cars.
Analysts at US broker Bernstein see Tesla maintaining a slender lead next year in terms of sales at $114 billion compared to $112 billion for BYD, but in terms of volume the Chinese maker is seen outpacing Tesla with the launch of its third-generation model range.
BERKSHIRE AN EARLY BACKER
While BYD may not be on many investors’ radar, US investment firm Berkshire Hathaway (BRK.B:NYSE) – managed by Warren Buffett and his business partner, the late Charlie Munger – saw the firm’s potential 15 years ago, taking a near-10% stake in 2008 via the US ADRs for just $230 million.
At their peak in July 2022, when Berkshire began to trim its holding, the ADRs were trading at around $82 meaning its investment was worth $8 billion or nearly 35 times its initial value.
In the three months to September the Chinese firm had its best ever quarter, and according to Counterpoint Research it already equals Tesla with a 17% share of the global BEV (battery electric vehicle) market having increased sales by nearly 70% over the last 12 months.
