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China’s BYD to take on VW and Tesla as it unveils EV expansion plans

By Jenal Mehta

13:42, 30 September 2022

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In this article:
1211
BYD
191.05 USD
-2.1 -1.090%
LCID
Lucid Group, Inc.
10.20 USD
0.33 +3.370%
NIO
NIO Limited
13.16 USD
0.91 +7.610%
RIVN
Rivian Automotive Inc.
31.41 USD
-0.02 -0.060%
TSLA
Tesla
194.55 USD
-0.49 -0.250%

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electric car charging
BYD to start selling electric vehicles in Europe, which is a the sector’s strongest market. Photo - Getty Images

Chinese car maker BYD (1211) has unveiled global expansion plans which will have it competing for market share with the likes of Volkswagen (VOW3) and Tesla (TSLA)

This news comes only weeks after Warren Buffet's Berkshire Hathaway sold its share in BYD, causing it to drop more than 12% in value.

BYD has seen an healthy level of growth, with its net profit rising by 160% year on year in 2022. This growth is in contrast to its Chinese rivals such as XPeng (XPEV) and NIO (NIO) which reported deep losses due to the current economic backdrop.

BYD (1211) Price Chart

The company remains significantly smaller than its closest competitor, Tesla (TSLA). In 2022, while Tesla brought in $5.6 bn in profits, BYD brought in $0.5bn. Tesla remains the biggest earner in the electric vehicle sector globally.

Europe is the biggest market for electric vehicles sales, and BYD is planning to sell its models in the region in an effort to boost revenues.

As electrification in the auto industry picks up pace, it's likely many new players, such as Rivian (RIVN) and Lucid (LCID), will also be trying to take market share from Tesla (TSLA).

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Tesla (TSLA) Price Chart

Success in China

BYD (1211) is China's largest electric vehicle (EV) maker, its recent growth spurt has been driven by a rise in auto deliveries and margin improvements.

Jing Yang, Director at Fitch Rating said in a note: “Its aggregate vehicle gross margin widened to 18% with EV price increases and product mix improvements as it raised the share of sales of higher-end EVs and stopped producing unprofitable fossil-fuel cars from March 2022. BYD’s strategy to produce batteries and certain types of microchips internally also helped it to better weather supply-chain bottlenecks and cost inflation.”

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This is in contrast to other Chinese EV makers who have been taken down by the current economic constraints and shortage of semiconductors.

 

Yang says: “Many EV makers said 2Q22 margins deteriorated due to higher battery costs while deliveries of EVs with higher prices did not start until the second half of the quarter, if not later. They expect gross margins to recover from 3Q22. However, most EV makers still face volatile profitability due to product mix shifts, potential price competition, and sustained high R&D and selling expenses.”

BYD is not taking the EV race lightly, it produced more models than Tesla (TSLA) during the first half of 2022. BYD and Tesla produced 654,000 and 564,000 models respectively.

NIO (NIO) Price Chart

Success in Europe

The new European models by BYD (1211) will be available for pre-order in October 2022, With simultaneous deliveries in some countries.

The European market has been the largest consumer of EVs. According to a report by ING, since 2019 the largest sales of EVs has been in Europe. Although China is expected to catch up in 2022, the sales in Europe are likely to keep growing.

In this promising market, BYD is likely to find success in the region.

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