Are Electric Vehicles Running out of Gas?
Since the creation of automobiles, the world has relied on combustion engines as a means to fuel our movement, but as we move towards a new era, it’s virtually certain that the old will be replaced by something new: electric vehicles (EVs). However, as revolutionary as EVs may seem, the allure of their widespread adoption seems like a racecar disappearing into the horizon. Or perhaps, is it actually speeding towards us faster than we thought, leaving us in the dust along with the gasoline era? In this editorial piece, QBR Editor, Chanelle Cai, aims to evaluate the competitive landscape amoung major electric vehicle providers and to make a deterministic conclusion on the champion of the industry going forward. The article will compare leading players, BYD and Tesla, under three major criteria that dictate success within the space.
Through this comparison, insights will be gained on the race to global EV dominance, providing a clearer path towards the future of transportation.
EV Market Overview
Given the rapid pace of technological advancements, it's no surprise that the 21st century has brought about a multitude of remarkable developments. This is particularly true within the field of transportation where EVs—rechargeable battery-operated vehicles—have emerged as the pioneers to a cleaner and more sustainable future. On a clear path to overtake gasoline-run cars, the International Energy Agency reports that in 2022, more than 26 million electric cars (in volumes) were driven on global roads, representing a 60 percent increase from the year prior (Figure 1).
Figure 1: Volume of the global electric car fleet from 2015-2022
With that being said, there still exists a number of barriers that have slowed down the overall pace of widespread EV adoption. Amoung these obstacles, charging-related problems stand out as the biggest hindrance, specifically in relation to the lack of charging infrastructure. In addition, EV performance concerns including battery longevity and the constrained financial affordability of purchasing EVs, add on to the difficulties of electrification. Despite these challenges, the market has seen remarkable growth in recent years, primarily driven by a convergence of major advancements in battery technology and production, heightened environmental consciousness, and increasing government incentives. Evolving consumer perceptions have also made EVs a more attractive vehicle investment option, supported by research showing significant long-term cost savings. According to a 2020 Consumer Reports study, EV drivers spend approximately 60 percent less on annual fuel costs compared to their gas-powered counterparts. The combination of these key factors have fueled interest in EVs, shifting it away from a radical concept, to one that is practical and affordable for regular individuals.
Apart from the challenges facing EV adoption, looking into the geographical market landscape for EVs reveals that, in 2022, three key markets dominated electric vehicle sales: China, which accounted for around 60 percent of global electric cars, then Europe and the U.S. who were second and third respectively (Figure II). In particular, it is notable how China’s EV market has surged globally in the last few years. This is largely due to support from favorable government policies (e.g., subsidies), capabilities for mass production, and growing demand in not only its domestic, but international markets. Regardless, as a whole, the EV industry is highly dynamic and possesses a large number of competitors. These firms range from Elon Musk’s American-based company, Tesla, to China’s BYD and NIO, and even traditional car manufacturing companies breaking into the EV market such as Volkswagen Group and Stellantis.
Figure II: Geographical market share of EV car sales (in millions)
Key Criteria
Now, as more and more automakers begin to explore the field of electric vehicles, it's important for EV companies to possess a sustainable business model, allowing them to stand out from competitors and to retain consumer loyalty. Amoung these players, the industry has seen BYD and Tesla rise to the top to lead the EV evolution. BYD, which stands for “Build Your Dreams”, is a Chinese electric-vehicle company that has grown to become one of the world’s leading rechargeable battery and electric vehicle manufacturers. On the other hand, Tesla is a renowned American electric vehicle and clean energy company that has played a major role in innovating and boosting the popularity of EVs. Led by its CEO Elon Musk, the company operates internationally, with a significant presence in the U.S. and China markets.
Comparing and evaluating two influential players in the industry, BYD and Tesla, what specific aspects implicate the success of an EV operation and the product itself?
I: Geographic Location
Tesla: Over the years, the American company has established a large global market presence and brand reputation, making it the most renowned electric vehicle company. The establishment of this presence is largely attributed to their effective expansion worldwide, in which they have manufacturing facilities in key markets such as the United States, China, and Europe. In the U.S./Canada, Tesla has increased its market share to almost 4.0 percent, in addition to a 2.4 percent and 2.0 percent market share composition in Europe and China, respectively (Figure III). Notably, the construction of Tesla’s Gigafactories—one of the world’s highest volume production plants for electric motors and batteries—has also allowed Tesla to facilitate and simplify local production, while also reducing shipping costs and enabling the company to competitively price its vehicles against competitors in different regions.
Figure III: Market share of Tesla vehicles by region (TTM)
BYD: Headquartered in Shenzhen, Guangdong province, BYD is the largest manufacturer of lithium batteries and electric bus fleets in its home market, China. Even amidst automakers cutting prices in China to compete for market share, BYD has managed to grow its gross margin to 18.5 percent from 13.5 percent a year ago, simultaneously becoming the preferred electric vehicle brand amoung Chinese consumers. Although a significant portion of BYD’s car sales currently originates in China, there exists a substantial runway for growth in the country due to cost-effective electricity and favourable government policies—clearly seen with EV sales rising 93.4 percent YoY in 2022. While its global brand presence may not currently match that of Tesla, the company has been rapidly expanding its product portfolio and establishing manufacturing facilities across Europe, Brazil, and North America. This globalization is largely attributed to their electric bus sector, where the company has supplied electric buses to numerous metropolitans worldwide. BYD’s e-buses are a part of public transit fleets in over 100 major European cities across 20 countries, including the famous double-decker buses in London. Recently, BYD has also made its way to Canada where its battery-electric buses will be put into service by the Toronto Transit Commission (TTC).
Figure IV: BYD’s monthly sales of new-energy passenger cars
Key takeaways: Tesla has already established and secured its global reach across several countries, leveraging its brand reputation and first-mover advantage to its benefit. The company’s various manufacturing facilities also position it to easily dominate international markets. Nevertheless, BYD’s leading position in China’s EV market, in addition to the substantial presence of their electric buses overseas, places them in an advantageous position relative to its competitor, Tesla. The surging adoption of EVs in the country has also propelled BYD to surpass Volkswagen as the country’s top-selling car brand this year. With China emerging as the world’s largest EV exporter, BYD is strategically positioned to leverage its expansion into global markets.
II: Affordability & Variety of Vehicle Styles
Tesla: While Tesla has gained renown for its innovative and high-performance electric vehicles, it is predominantly recognized as a premium electric vehicle manufacturer catering to the luxury and affordable luxury segments. Notably, its earlier models, such as the Model S and Model X, were luxury sedans and SUVs with relatively high price tags. These cars not only set the standard for luxury electric vehicles, but also demonstrated the performance and potential of electrification. Aside from its more lavish versions, Tesla has also made efforts to expand its market by introducing more affordable models, such as the Model 3 and Model Y—cheaper versions of the luxury SUV and sedan models.
BYD: Recognized for its commitment in offering more affordable price points for consumers, BYD has positioned itself to become more accessible to a broader customer base. The company also boasts an impressive product lineup of EVs, such as passenger cars, commercial vehicles, and electric buses, designed for everyday transportation and practical usage. Amoung these options include bestselling BYD Qin sedans, affordable plug-in hybrid EVs that can operate without a specific charging infrastructure, and BYD electric buses that contribute to the company’s strong presence in the electric bus market.
Key Takeaways: Considering both companies possess a wide array of product types, notably the much-preferred large-size vehicles, its key differences come down to the component of pricing. Tesla’s positioning as a premium electric vehicle company means that it has far higher selling prices than BYD, making it much less affordable than its Chinese counterpart. As one of the major barriers to large scale EV adoption comes down to affordability and accessibility, BYD’s price points, when compared against Tesla’s, might sway consumer decisions, and ultimately the EV firm they choose to purchase from.
III: Battery Technology & Supply Chain
Tesla: Tesla has been a key leader in advancing battery technology and extending the distance range of electric vehicles, contributing largely to the greater adoption of EVs. After making substantial investments into battery research and development, they now use the 4680 lithium-ion batteries. These batteries have a higher energy density and can store greater amounts of energy relative to their smaller size. This key innovation has allowed Tesla’s cars to surpass industry standard benchmarks for range after a single charge. While the company maintains vertical integration throughout its manufacturing processes, primarily through extensive automation, its vulnerability to semiconductor shortages is heightened due to reliance on third-party suppliers for raw materials. That being said, Tesla’s vast network of manufacturing facilities across various countries allows the company to capitalize on greater economies of scale.
BYD: Starting out as a battery-focused company, the Chinese EV giant has invested significant capital into its battery technology, making itself known as a leading producer of rechargeable batteries. In specific, BYD has gained recognition for its use of lithium iron phosphate batteries in its electric vehicles, allowing its cars to have better safety, longevity, and a lower price point than other battery types. Aside from the use of BYD’s own batteries for its electric vehicles, the company also sells its technology to competing EV firms in the market. This includes Tesla, who has started using BYD’s Blade batteries—recognized as one of the safest EV batteries—in their Model Y electric cars, as well as Mercedes, who will use battery cells from BYD to produce a version of its all-electric CLC. Additionally, unlike competitors, BYD is fully capable of meeting most of its battery needs alone due to its vertically integrated value chain. The company has complete control over the supply chain process, sourcing raw materials from its own mines in China and producing its own batteries and semiconductors through its manufacturing facilities. This has given BYD significant cost advantages compared to competitors.
Key Takeaways: While Tesla has already developed one of the best EV batteries on the market, BYD is in a position of growth and advancement as it expands its battery technologies beyond the scope of its own company, to support competitors’ electric vehicle production as well. The company’s expertise within the battery space, in addition to its firm grip on the supply chain and vertically integrated value chain, places it in a much more advantageous position within not only China, but also global EV markets. Moreover, it should be noted that Western carmakers are expected to lose about a fifth of their global market share as cheaper and more cost-effective Chinese EVs take over.
Accelerating Ahead
As the world turns more environmentally conscious and consumers become more willing to adopt greener alternatives, the EV industry is set to continue growing into the near future, potentially eliminating gas-run vehicles entirely. Tesla, with its strong global reputation, reliable performance, and innovative technology has disrupted the automobile industry and contributed to the growing adoption of electrification. Meanwhile, BYD's commitment to affordability, unique presence within the electric bus and commercial vehicle sectors, coupled with its stronghold in China and the EV and battery production supply chain, make it a reliable choice for consumers.
Ultimately, after thoroughly comparing both companies, it’s evident that BYD’s strong presence in China’s growing EV market positions it favorably to benefit from industry trends. The company’s leadership in battery technology, geographical advantages in China, fully vertically integrated structure, and global product presence, will propel the company forward as the champion of the market. Overall, in this ever-innovating EV market, the world will witness a dynamic competition amoung top industry players. As they alternate back-and-forth between acceleration and deceleration, it won’t be long until one surges ahead to the finish line.