A couple of years ago, we were writing articles about how U.S.-based Tesla is different from China-based BYD, which is backed by Warren Buffett. Today differences between the two still exist, but it seems Tesla is taking some pages out of BYD’s playbook. Vertical integration was and still is a big part of BYD’s strategy, but TSLA is moving in the same direction with its gigafactory. And the similarities don’t stop there.
Tesla drives toward vertical integration
Goldman Sachs analyst Yipeng Yang and team reinstated coverage of BYD with a Buy rating in a report dated September 1 and included a discussion of the similarities and differences between the two automakers in their substantial report. One of their arguments is that BYD’s electric vehicle business bears much resemblance to Tesla yet trades at a “sizable discount” to it. They believe the discount is unjustified because of BYD’s “large cost savings, capacity utilization, and front-laded investment.”
Over the next ten years, they expect China’s new energy vehicle market to see a compound annual growth rate of about 30%, which is much faster than the 4% rate they project for traditional cars there. Needless to say, this means China will be huge for EV makers such as BYD, which has a domestic advantage over Tesla, although TSLA has been making plans to set up a factory there at some point.
Where BYD and Tesla are alike
It seems unlikely that Tesla even wants want to reach the level of vertical integration BYD has, but it does have some amount of vertical integration. As the Goldman team notes both companies are integrated in terms of making their own battery packs, and Tesla is moving further in this direction by setting up its massive gigafactory.
It must be noted that most of the similarities the Goldman team calls out are pieces of Tesla’s “Master Plan: Part Deux.” For example, while both offer electric cars as part of their core businesses, BYD has been making electric buses as part of its core business for a long time already. In fact, the Chinese company has been making long strides with its electric buses in the U.S. market. TSLA, however, is still some years away from having an electric bus, although it’s in the second part of CEO Elon Musk’s master plan.
Tesla playing catch-up to BYD in other areas
Tesla is also planning an electric truck at some point, but BYD already has a head start there. The U.S.-based EV maker is also trying to add solar panel sales via the troubled acquisition of SolarCity, but BYD already sells them. The Chinese firm also already offers car sharing through a strategic partnership with Didi, while Tesla announced it as part of Master Plan: Part Deux.
BYD also partners with Didi for semi-autonomous driving features, although TSLA has its Autopilot feature as part of its core business. Both the Chinese automaker and the U.S.-based automaker have energy storage businesses.
Where BYD and Tesla differ
One of the biggest differences between Tesla and BYD is the fact that BYD still has some legacy businesses such as its handset assembly line. Also BYD’s mobile phone batter business was once its core business, but now vehicles have risen in importance. The Chinese firm also offers hybrid electric vehicles and cars with an internal combustion engine, although the Goldman team reports that the ICE segment is scaling down.
Yang and team also explained that BYD is also organized differently, as the Chinese firm has more of a “traditional industrial style,” while Musk has mentioned transitioning Tesla engineering toward a “machine that makes the machine” or basically making “the factory itself into a product.”
BYD to enjoy similar pace of growth as TSLA
The Goldman team expects BYD’s NEV sales volume to grow about on pace as Tesla’s sales volume, although the Chinese automaker’s cars have a much lower average selling price.
They added that while BYD‘s revenue is less than Tesla’s is expected to be through 2020, they believe the OPM of the company’s NEV business will stay higher than TSLA’s, mostly as a result of higher subsidies.