Why US Manufacturers May Have to Extend Their EV Range

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When Tesla and BYD sales figures are released at the end of each quarter, investors will certainly pay attention to which manufacturer tops the list in terms of electric vehicle deliveries to customers.

It’s been a tight and volatile race. Tesla retained its top spot in the most recent quarter, ending in June, despite a 5 percent drop in deliveries. The Elon Musk-controlled company delivered 443,956 vehicles compared with 426,039 battery-powered electric vehicles from its Chinese rival.

But comparing Tesla and BYD based on sales volume is a metric that is no longer as important as it once was in determining the companies’ stock price prospects.

The problem with continuing to use shipment volume as the primary industry metric is that it fails to capture other important metrics, including unit price and profit margin.

The two companies are now competing at different price points. Tesla’s cheapest model starts at about $31,900 in China, more than three times the list price of BYD’s lowest-priced model. That Seagull, an all-electric hatchback that starts at $9,900, sold more than 280,000 units last year, accounting for nearly a fifth of BYD’s total battery-electric vehicles sold last year. Tesla’s higher prices give it a lead in another metric: an operating margin of more than 9 percent, compared with BYD’s 5 percent. And in 2023, Tesla is expected to generate about $82.4 billion in auto sales, while BYD is expected to report $66.5 billion.

The more notable point from the latest sales figures is that price is increasingly becoming an important growth driver for electric vehicle makers.

BYD delivered a new record in the second quarter, just after the company slashed prices on most of its models in late March. And a closer look at Tesla’s sales shows that even with the overall decline, deliveries of its two cheapest models—the Model 3 sedan and Model Y—were still 7% higher than market expectations. Meanwhile, deliveries of its more expensive models—the Model S, Model X, and Cybertruck—fell short of market expectations by nearly 30%, according to Bank of America.

Providing a wide range of EVs at a wide price point is especially important for future growth because many of the world’s fastest-growing EV markets are emerging market countries. For example, EV sales in Thailand, Southeast Asia’s second-largest economy, increased more than sevenfold last year.

BYD, which has electric vehicles at a wide range of price points, is enjoying much of that windfall, now accounting for nearly half of the country’s EV market. The company’s price advantage, which comes from a vertically integrated supply chain that produces its own batteries, was further boosted last year as the cost of making battery cells fell. The average selling price of electric cells in China fell more than 50 percent from the start of 2023 through December.

BYD’s surge in vehicle exports, which quadrupled last year, will give Tesla more momentum to expand its portfolio into the lower-priced segment.

The urgency to do so is growing. In China, which accounts for 60% of global electric vehicle sales, Tesla sales have been particularly weak, with sales of Chinese-made electric vehicles falling 24% in June from a year earlier, according to data from the China Passenger Car Association.

Tesla’s legacy product line and software advantage are starting to be challenged by Chinese rivals like Nio, which makes electric vehicles equipped with self-driving software and smart driving technology. Nio’s sales have caught up much faster than expected, with deliveries doubling in the second quarter. Furthermore, differentiating on battery range is becoming difficult, with even BYD’s cheapest Seagull EV reportedly offering up to 250 miles of range on a single charge.

Tesla’s stock has surged more than 40 percent over the past month and now trades at more than 90 times expected earnings, compared with BYD’s 18 times. Part of that reflects expectations for the company’s other fast-growing businesses, including battery storage systems. But as the most affluent electric vehicle markets become increasingly saturated, the company’s wider price range for its models will help it better justify a higher valuation.

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