BYD has overtaken Tesla as the world’s largest manufacturer of fully electric cars to much fanfare, but the two automakers are playing different games. With its focus on the mainstream, BYD could pose a greater risk to legacy automakers.
In 4Q 2023, BYD became the world’s largest seller of Battery Electric Vehicles (BEVs), delivering 526,409 cars compared to Tesla’s 483,173. Unlike Tesla, the Chinese Original Equipment Manufacturer (OEM) does not exclusively make BEVs, with an additional 416,242 passenger Plug-in Hybrid Electric Vehicles (PHEVs) sold in the fourth quarter. This means that BYD has successfully met its target of selling 3 million passenger New Energy Vehicles (NEVs) in 2023, while Tesla’s 1.8 million deliveries fall behind its target of 2 million for the year.
BYD has, until recently, been entirely reliant on the Chinese market, where it is now responsible for around a third of NEVs sold. Its overseas EV sales have grown by nearly 200% Year-over-Year (YoY), which is now starting to make an impact: 97,245 units were sold outside of China, accounting for 10.3% of BYD’s shipments during the quarter.
BYD Overtakes Tesla, but Other OEMs Should Be More Worried
BYD and Tesla are, by far, the most successful EV companies in the world. Not only are they well in front of the pack on shipments, but both are also selling their vehicles for a profit—a task with which other OEMs are still greatly struggling. Vertical integration is a shared strategy that the two automakers have used to bring down their production costs. However, this is really where the similarities end.
While 90% of BYD’s sales are made in China, Tesla’s are global: 39% of its sales are made in North America, 36% in China, and 19% in Europe. BYD has no intentions of entering the United States, which limits competition between the OEMs to China, Europe, and other smaller automotive markets. The only mass market models Tesla has in China are the sedan Model 3 and the Sport Utility Vehicle (SUV) Model Y, starting at CNY261,400 and CNY266,400, respectively. Meanwhile, BYD’s top selling BEV models are the Dolphin, Seagull, and Yuan Plus (internationally known as the Atto 3), collectively accounting for half of the OEM’s fully electric sales. The Dolphin and Seagull are both small city cars, starting at CNY116,800 and CNY73,800, respectively, while the Yuan Plus is a sub-compact crossover starting at CNY135,800.
While BYD does have some models that directly compete with Tesla’s, most of its sales are in segments that Tesla does not yet cover. This means that BYD can service a greater section of the automotive market unchallenged by Tesla, while also directly competing, pitting models such as the Seal against the Model 3 and the Song range against the Model Y.
It makes more sense to compare BYD to legacy OEMs. BYD is a relatively new name to many in the West, but it has a long history of automotive manufacturing; its first car launched in 2005, and it has been making BEVs since 2009. As with Toyota, Volkswagen, and Stellantis, its sales are led by affordable and simple cars; it has now added Denza, Yangwang, and Fangchengbao as more premium brands to compete with the likes of Lexus, Audi, and Maserati. Across its brands, it now offers more than 30 models, which far more closely resembles the catalog of a major automotive group than Tesla, which after the introduction of the Cybertruck still only offers five models.
BYD is now making a big drive into Europe, where it aims to deliver 800,000 cars in 2030. It is pushing five BEV models to fill gaps that are currently underserved by the local industry. The small BYD Dolphin starts from around €30,000 with a range of 427 Kilometers (km), significantly undercutting the comparable Peugeot e-208 with a price of €35,000 and a 362 km range. Much has been made of the Chinese OEM’s affordable electric city cars, but there is more to the story. On the other end of the spectrum is the BYD Tang, a large seven-seater SUV with a 400 km range and a €72,000 price, which puts it in a segment with few legitimate contenders. By filling these niches, BYD is opening up electrification to customers who are not interested in the current range of EVs on the market because they do not meet specific requirements.
Tesla and BYD Are Pressuring Competitors from Both Ends
Tesla has been the leading brand among early adopters, but this market is now drying up as the industry transitions toward mass adoption. The American OEM was the natural choice for consumers who just cared about having a fully electric car, but this is not how most people buy cars, and it will need to launch new models to successfully reach its lofty ambitions of 20 million shipments in 2030. This has, thus far, been an area in which it has struggled. The planned low-cost, high-volume EV often referred to as the “Model 2” is still nowhere to be seen, which will leave it with the Model 3/Y accounting for the vast majority of its sales for the foreseeable future. BYD, with its cheaper cars that are available across all segments, seems to be better poised for the mainstream.
Tesla disrupted the automotive industry with its new vision across infotainment, Electronic and Electrical (E/E) architecture, batteries, and manufacturing. When playing catch-up, however, OEMs must make sure not to lose track of their core market and remember the fundamentals of manufacturing cost-competitive cars at scale. There are several strategies that BYD has used to gain a cost advantage that its competitors should look to replicate.
Many OEMs are unable to produce mid-range and low-end EVs because of high manufacturing costs that force them to focus on models with higher margins. To bring down prices for these segments, OEMs will need to adopt Lithium Iron Phosphate (LFP) batteries. In 2023, these cells were 32% cheaper than their Nickel Manganese Cobalt (NMC) counterparts, an advantage that BYD has leveraged to great success. All of its vehicles are powered by its in-house LFP cells, which are also sold to other OEMs, including Tesla, Toyota, and Kia. OEMs will be reliant on the Chinese battery industry to supply these cells; building an independent European LFP supply chain will be impossible in the near term.
Another key asset for BYD is its extensive vertical integration. The OEM can make every component of a vehicle in-house except for the windows and tires. This level of centralization is not feasible or necessarily desirable for all OEMs, but they should look to gain greater control over their battery supply, as it is the most expensive and differentiating part of an EV. This can be accomplished through a close strategic partnership with battery suppliers, as with Hyundai and LG Energy Solutions (LGES), or through in-house production as BYD does. This can directly reduce the cost of battery packs to OEMs and enable new platform formats that further reduce vehicle manufacturing costs. The Cell-to-Pack (CTP) and Cell-to-Chassis (CTC) architectures that BYD uses reduce costs and increase energy density, but are only practical with a high level of control over battery design and production.