Tesla Motors Inc (NASDAQ:TSLA) has enjoyed tremendous success this year as investors respond to the potential that lies in the future of electric vehicles, as it’s not the only one. Abheek Bhattacharya of The Wall Street Journal calls Chinese electric-car maker BYD (HKG:1211) China’s Tesla. However, there are some differences between the two automakers which could make it more difficult for BYD to succeed in the electric car business.
BYD vs. Tesla
The biggest difference between BYD (HKG:1211) and Tesla is that the former doesn’t just make electric vehicles. The company gets 47% of its revenue from other electric items like components for handsets, rechargeable batteries and solar cells. As Bhattacharya notes, those businesses are very competitive and not as profitable as the electric car business could be. Also this means that BYD’s focus is not entirely on electric vehicles, which gives Tesla a leg up.
One Of The Original Quants Has Still Not Lost His Touch With A 121% Return In 2020: In-Depth Profile Of Robert Zuccaro
Robert Zuccaro has been using quantitative investing strategies since before quant funds existed. In fact, he started one of the earliest quant funds at Axe-Houghton in 1978, 10 years before Morgan Stanley introduced its first quant fund. Q4 2020 hedge fund letters, conferences and more Zuccaro has been researching the correlation between earnings growth and Read More
Just 1% of the vehicles BYD sells are actually electric. Its low-end vehicles with internal combustion engines far outsell its electric models. This year shares of BYD (HKG:1211) have climbed 153%, mostly on hopes fueled by electric vehicle sales—despite the fact that the automaker sells so few electric vehicles. Currently the biggest buyers of BYD’s electric vehicles are local governments. The company’s business also hangs on government subsidies, making up 57% of its pretax profits for the first nine months of the year. Without those subsidies, BYD’s net profit fell 123% year over year.
Tesla in the Chinese market
Of course the biggest controversy surrounding both BYD and Tesla Motors Inc (NASDAQ:TSLA) is whether electric vehicles will be the commercial success bulls are counting on. But while BYD continues to hang heavily on government subsidies, Tesla has worked toward abandoning its reliance on tax credits. The U.S. automaker has been aiming for a 25% gross margin without the use of sales from emission credits, and it’s well on its way.
Investors are also questioning whether Tesla Motors Inc (NASDAQ:TSLA) will be as successful as it has been in the U.S. and other parts of the world. One thing China is known for is taking a popular product and then making cheap knockoffs of it, and this is something Tesla is going to have to face. The automaker did have a strong launch in Hong Kong this year.
When Tesla reports its earnings this week, investors will be anxious to discover just how well sales in the various parts of the world have been going, including China.