Tesla, the trailblazer in the electric vehicle (EV) industry, is on the verge of being dethroned by China's BYD Co. in annual EV sales. This development signals a significant shift in the global EV market, influenced by regional demand variations and strategic maneuvers by both companies. According to Bloomberg Intelligence (BI), BYD's momentum in China is a key factor driving this change, while Tesla faces challenges in the US and European markets.
BYD's rise to prominence in the EV market is not entirely unexpected. The company briefly surpassed Tesla in pure EV sales during the fourth quarter of last year, selling 526,409 units compared to Tesla's 484,507. This year, BYD has maintained its momentum, shipping nearly one million electric and hybrid cars in the second quarter alone, thanks to aggressive discounting strategies in its home market. However, BI warns that the ongoing price war in China is "unsustainable" and could lead to further market exits and consolidation.
Tesla, on the other hand, has been grappling with a series of challenges. The company reported its fourth consecutive quarter of disappointing profits and is far from achieving its target of selling 1.8 million cars this year. Additionally, Tesla has revised its growth expectations for 2024, anticipating a "notably lower" growth rate. Michael Dean, BI's senior European auto analyst, noted, "Tesla's original 50% annual growth target is in tatters. Tesla’s longer-term success relies on a cheap high-volume Model 2 which is yet to be unveiled."
The shifting dynamics in the EV market are also reflected in the strategies of legacy automakers. Companies like General Motors, Volkswagen, and Ford Motor Co. continue to see profits from internal combustion engines, including hybrids, as demand for battery EVs stalls. This trend has also benefited Toyota Motor Corp., whose shares have jumped 50% since mid-2023 due to its bet on the longevity of combustion engines and hybrids.
Despite these challenges, Tesla remains the largest carmaker globally by market capitalization, valued at $786 billion at the close of trading on Tuesday. In contrast, BYD holds the third position with a market value just shy of $100 billion. However, the long-term outlook suggests that BYD may continue to hold its sales lead over Tesla through 2027, before Tesla potentially regains the crown in 2028. Meanwhile, Volkswagen is expected to slowly close the gap with its larger rivals.
The competition between Tesla and BYD highlights the rapidly evolving landscape of the global EV market. While Tesla faces headwinds in the US and Europe, BYD's aggressive strategies in China are propelling it to the forefront. The future of the EV market will likely see further shifts as companies adapt to changing consumer preferences and market conditions.
