Chapter 1: The State of Tesla in 2023

The year has proven to be unusual for Tesla. Elon Musk has diverged from the company's engineering team by advocating for a vision-based autopilot system, a move that many experts criticize as fundamentally flawed. This decision raises eyebrows, especially with the Department of Justice investigating several fatal accidents that may involve Tesla's autopilot. Earlier this year, Tesla ignited a price war in the electric vehicle (EV) sector by significantly reducing prices, which consequently harmed their previously unmatched profit margins. Despite these challenges, Tesla has managed to achieve record vehicle deliveries, initiated production of the long-anticipated Cybertruck, and rolled out updates for the Model 3. Meanwhile, key competitors are making substantial progress, launching new models, and achieving impressive delivery figures. The pressing question remains: Is Tesla still the leader in the EV landscape? After examining the data, I found some surprising insights.

To begin with, let's analyze Tesla's performance. In the first half of 2023, the company delivered 888,975 vehicles, generating a revenue of $48.227 billion and securing a net profit of $5.2 billion, equating to a profit margin of 10.78%.

What does this data suggest? For comparison, in 2022, Tesla's net profit margin peaked at approximately 25%, with revenue totaling $81 billion and net profit reaching $12.58 billion from 1.31 million vehicle deliveries. These figures indicate a 26% increase in vehicle deliveries compared to the previous year. However, due to a significantly reduced profit margin, their net profit has decreased by 17% when reflecting on last year's results.

Several factors contribute to this decline in profit. The establishment of new factories, the scaling of production for the 4680 battery, and the introduction of the Cybertruck and Tesla Semi, along with retooling for updated versions of the Model 3 and Model Y, have collectively cost Tesla billions. Additionally, the price war initiated by Tesla further eroded their profit margins, resulting in less favorable financial outcomes in 2023.

Now, how does Tesla's closest competitor fare? If you're in the U.S., you might assume that Rivian, Ford, Kia, or Hyundai are Tesla's primary rivals. However, on a global scale, the real challenger is BYD. Currently, BYD's sales are primarily confined to a few Asian countries, with a recent push into the European market. Thanks to their superior in-house battery technology, impressive specifications, high build quality, and competitive pricing, they are selling nearly as many EVs as Tesla, despite being present in fewer markets.

When I say they are close to matching Tesla's sales, I mean it! In the first half of 2023, BYD delivered 616,647 EVs, making them the second-largest EV manufacturer globally by a significant margin. These figures are particularly remarkable given that they are still establishing themselves as a global brand.

Unlike Tesla, BYD also offers plug-in hybrid vehicles, having sold around 1.68 million of these in the same period. Thus, directly comparing their financials can be complex. However, for the first half of 2023, BYD reported a revenue of $35.7 billion, a net profit of $1.5 billion, and a profit margin averaging 18.3% across Q1 and Q2. Notably, their net profit nearly tripled compared to 2022, highlighting their rapid growth. This expansion also accounts for the discrepancy between profit margins and net profit, as they are reinvesting significantly to scale operations.

Interpreting BYD's financial figures can be challenging, especially since a significant portion of their profits comes from hybrid vehicle sales. However, there are indications that BYD's EVs may be equally, if not more, lucrative than Tesla's offerings. For instance, the BYD Seal, which competes with the Model 3, is priced lower while delivering similar specifications, and analyses reveal that it achieves a 16% profit margin—outperforming the Model 3 for BYD.

It's essential to emphasize that BYD has reached these impressive sales figures primarily within China, and they have only recently begun entering the European and Australian markets. The BYD Atto 3 emerged as the best-selling EV in Sweden in July, surpassing all Tesla models, and their sales figures in other EU nations are promising. Furthermore, BYD is actively planning to construct factories in Europe to meet local demand directly. This suggests that BYD has both the demand and the capacity to significantly increase their EV sales in the coming years, potentially outpacing Tesla.

Another critical aspect of BYD's success lies in their battery technology. They have developed the blade battery, which is energy-dense, fast-charging, efficient, environmentally friendly, durable, and safe. Crucially, this battery is also cost-effective, potentially costing a third of a comparable lithium-ion battery and nearly half the price of Tesla's 4680 cells. This cost advantage enables BYD to offer competitive prices while maintaining profitability. Additionally, other manufacturers, including Toyota and Mercedes, are eager to utilize BYD's blade battery, and even Tesla sources this technology for its European and Asian Model Ys. Yes, Musk is purchasing batteries from a key competitor instead of relying solely on in-house production.

As the automotive industry increasingly transitions to electric vehicles, BYD is poised to expand its battery sales, given its superior price-to-performance ratio. In contrast, Tesla struggles to produce sufficient 4680 cells for its vehicles, let alone sell them profitably to other automakers. Consequently, there is a strong possibility that BYD's battery division could soon contribute to profits that surpass those of Tesla.

Both Tesla and BYD are advancing rapidly, leading the charge ahead of other competitors. Their market shares and profits are unparalleled in the EV sector. Currently, Tesla remains in the lead, but BYD is steadily closing the gap. Over the next few years, Tesla's sales are expected to rise, particularly with the Cybertruck's release. However, the Cybertruck's appeal will likely be strongest in the U.S., where demand for such vehicles is highest. Moreover, Tesla's days of enjoying nearly 30% profit margins on each vehicle are likely behind them. Meanwhile, BYD is quickly expanding into new markets, achieving strong sales, and pricing their vehicles competitively while remaining more profitable. Thus, while Tesla may still hold the title of market leader, its position is increasingly vulnerable.

Thanks for taking the time to read this analysis! Your support is crucial for content like this to thrive. If you'd like to back this work or access articles ahead of time, consider following me and my project, Planet Earth And Beyond, on www.PlanetEarthAndBeyond.co, Google News, Flipboard, or connect with me on Bluesky.

(Originally published on PlanetEarthAndBeyond.co)

Source: Reuters, CounterPoint, Electrek, Barrons, Statista