Elon Musk is All Praise for BYD & Chinese EV Companies

Tesla’s (NYSE: TSLA) CEO Elon Musk has praised Chinese EV (electric vehicle) giant BYD and termed it “highly competitive.” In 2011, the billionaire had laughed at the possibility of BYD as a competitor to Tesla.

Meanwhile, over the last decade, sales of both Tesla and BYD have exploded. Tesla sold 1.31 million EVs (electric vehicles) last year and surpassed the milestone of selling over 1 million cars in a year.

BYD meanwhile shipped 1.85 million NEVs (new energy vehicles) last year which were roughly equally distributed between BEVs (battery electric vehicles) and PHEVs (plug-in hybrid vehicles).

Notably, Tesla only sells BEVs and is the global leader. However, BYD surpassed Tesla to become the largest seller of NEVs last year.

Elon Musk praises BYD

Musk has praised Chinese EV companies previously also. During Tesla’s Q4 2022 earnings call in January, Musk said, “we have a lot of respect for the car companies in China. They are the most competitive in the world. That is our experience.”

He added, “They work the hardest and they work the smartest. And so, if I were to guess, probably some company out of China is the most likely to be second to Tesla.”

Previously also the billionaire praised Chinese workers for burning the 3 a.m. oil” while criticizing American workers for “trying to avoid going to work at all.”

Notably, Musk often pushes employees to scale deliveries toward the end of the quarter. Shortly after he acquired Twitter, Musk called upon the employees to quit if they cannot commit to “hardcore” work.

Chinese EV companies are giving a tough fight to Tesla

Chinese EV companies – especially BYD is giving a tough fight to Tesla. In April, Tesla delivered 75,842 EVs from its China Gigafactory, the majority of which were in China. The company’s sales fell 14.7% as compared to March even as they soared on a YoY basis due to the lower base effect.

In contrast, BYD delivered 209,467 cars which was slightly higher than in March. Its BEV deliveries were 104,364 in the month – a YoY rise of 82%.

While BYD has already surpassed Tesla in terms of NEVs, looking at the current momentum, it might surpass it in BEV sales as well.

Tesla expects to produce 1.8 million BEVs this year which Musk said can rise to 2 million if everything goes right.

Berkshire Hathaway is the biggest BYD stockholder

Berkshire Hathaway is the biggest stockholder of BYD and the company’s vice chairman Charlie Munger has praised it on more than one occasion – terming it his “best investment ever.”

He took a swipe at Tesla and said that while the company cut prices multiple times in China, BYD actually raised prices.

Tesla has lowered car prices multiple times this year but has raised them twice over the last month.

After multiple price cuts, the Model 3 now starts at just under $40,000 in the US which is the cheapest it has been since the launch. Notably, while Tesla recently raised prices for all the other models it did not raise Model 3 prices.

The company now has a dynamic pricing structure and determines car prices on real-time demand and supply.

Musk said Tesla would advertise its cars

Tesla does not advertise its cars and instead relies on word of mouth and Musk’s charisma to sell its cars. The strategy paid off reasonably well and Tesla sold around 1.3 million cars in 2022.

Also, its operating margins are way above other automakers who spend a big chunk of their revenues on marketing.

During the annual meeting, Musk talked up advertisement and said “I guess I should say ‘advertising is awesome and everyone should do it’” while adding that Tesla would also “try a little advertising and see how it goes.”

Musk is targeting annual production of 20 million EVs

Tesla has set itself a target of producing 20 million cars annually by 2030. To put that in perspective, Toyota, the world’s largest automaker, sold just over 10 million cars in 2022.

To achieve the goal of 20 million deliveries, which amounts to a CAGR of over 41% between 2023 and 2030, Tesla might need to build many more Gigafactories. In the past, Musk said that the company would need over a dozen Gigafactories to reach that goal.

At the annual day, Musk said that the company can sell 5 million units annually of the two new models. Additionally, he said that it can deliver upto half a million Cybertrucks.

Meanwhile, Tesla would face stiff competition from other automakers – especially those based in China as the EV market continues to see intense competition and the emerging price war.

US-China tensions

The rising US-China tensions are not helping matters for Tesla as it hasn’t yet received permission to expand its capacity in China.

Musk has reportedly landed in China today as he seeks to mend ties with the country’s leadership.

During Tesla’s Q4 2022 earnings call, Musk said that he is “convinced” that Tesla would one day become the most valuable company globally. During the Q3 2022 earnings call, Musk predicted that Tesla’s market cap would one day surpass the combined market caps of Apple and Saudi Aramco.

Musk flaunted manufacturing prowess as its real competitive strength. He added that the company is developing other products also.

China, which is the world’s largest automotive market, would be key if Tesla is to reach anywhere near the 20 million annual deliveries that Musk is targeting. Along with a key market, China is also a low-cost production destination for TSLA as it uses the country as a hub to export cars to other markets.

Meanwhile, while China laid out the red carpet for Musk when Tesla was setting up operations in the country – it might not need to woo the company much given the massive strides its domestic EV industry has taken over the last few years.