Which electric vehicle stock is the strongest? The three major industry leaders face off, a must-read for investors to understand the true competition in the industry

The new energy electric vehicle industry is undergoing a reshuffle. The story of Apple overthrowing Nokia and Netflix defeating Blockbuster back then is now being replayed in the automotive stock market. As global environmental policies tighten, the timetable for banning fuel vehicles is set, and electric cars are no longer a future imagination but an ongoing reality.

Who is leading the automotive stock market? The dominant pattern is set but competition is intensifying

The sales figures for the first quarter of 2023 best illustrate the issue: BYD’s sales increased by over 100%, while Tesla’s only about 50%. What does this contrast behind the numbers represent? It indicates that the absolute leadership position is being eroded.

Currently, the global electric vehicle market shows a “one super, many strong” pattern. Tesla, as the first company to take a risk in the industry, still holds about 21% of the global electric vehicle market share, but this percentage is gradually declining year by year. Especially in the Chinese market, emerging brands’ low-price competition has already posed a tangible threat to Tesla.

Meanwhile, Chinese electric vehicle manufacturers are rapidly rising. BYD has become the second-largest and the top Chinese EV producer worldwide, with new forces like Li Auto, NIO, and Xpeng also occupying their own market niches. This is no longer just a simple “US-China competition,” but a global clash of capital and technology on the electric vehicle track.

How deep is Tesla’s moat?

Tesla’s success is no accident. From launching the supercar Roadster to build a high-end brand image, to openly sharing patents to set industry standards, and leveraging carbon credits, subsidies, and policies for profit, Musk has used business genius to elevate Tesla to a divine status.

In 2020, Tesla achieved profitability and was included in the S&P 500, with its stock price soaring more than tenfold in a short period. During this time, Tesla’s technological lead and brand premium remain a significant gap that competitors find hard to cross.

But numbers tell the story. Tesla’s net profit margin is about 15%, while BYD’s is only 3.9%. This stark difference stems from Tesla’s highly automated production model and lower personnel costs. However, it is expected that by 2025, Tesla’s market share in North America will significantly decline. This is not alarmist but an inevitable market outcome.

BYD’s counterattack: from battery manufacturer to automotive leader

Compared to Tesla’s aggressive approach, BYD takes a more steady route. Since its founding in 1995, from nickel-cadmium batteries to lithium batteries, from mobile phone components to new energy vehicles, BYD has built a complete industry chain over thirty years. Buffett’s HKD 1.8 billion investment in 2008 not only solved funding issues but also endorsed the company’s credibility.

The key is that BYD controls the entire supply chain. This is especially important in the current market environment. As raw material costs rise, companies with their own supply chains can effectively control costs. BYD’s gross profit margin is about 20%, roughly comparable to Tesla, but its operating profit margin is much lower, mainly due to the broad industry scope leading to high personnel costs and reliance on the Chinese market.

But this also means huge potential. As BYD gradually expands overseas markets and optimizes cost control, future profit growth space is not to be underestimated. Buffett’s recent reduction in holdings has made BYD’s stock price relatively cheap, making it an attractive opportunity for long-term investors.

The three-way battle among new car-making forces: who will be the last to laugh?

Li Auto, NIO, and Xpeng were founded almost simultaneously, each backed by internet giants Meituan, Tencent, and Alibaba respectively. But their fates are vastly different.

In terms of sales and profitability, Li Auto has already turned losses into profits, becoming the only successful new car-making force to start making money. This brand, positioned around 350,000 RMB, has found a market niche with its “extended-range electric vehicle” innovative solution.

NIO targets the high-end market above 400,000 RMB, backed by Tencent capital. With continued subsidies in China, there is still hope to turn losses into profits through sales growth. Xpeng adopts a low-price strategy, focusing on the sub-200,000 RMB market. But in the current price war environment, if the low-price strategy cannot capture enough market share, it may easily fall into a “loss-making hype” dilemma.

The underlying logic of investing in electric vehicle stocks

Why invest in the electric vehicle industry? The reason is quite simple: it is an industry that will inevitably grow under the global carbon reduction goals.

Many countries have already set deadlines for banning fuel vehicles, from the EU to China, and US states, with very clear policy directions. Compared to saturated markets like smartphones and personal computers, which are just waiting for updates, the electric vehicle market is still in a explosive growth phase.

Using Buffett’s “snowball theory,” the electric vehicle industry has two core elements: enough wet snow (sufficient market demand and policy support) and a long enough slope (decades of continuous growth). This means that over the next ten or even several decades, the electric vehicle industry will remain a key focus of capital allocation.

Industry challenges and opportunities coexist

Of course, the growth of the electric vehicle industry is not smooth sailing. The underdevelopment of charging infrastructure remains a major bottleneck, especially in highly urbanized areas. Additionally, rising raw material costs and consumer resistance to price increases are squeezing industry profits.

This “elimination race” has already begun. According to BYD Chairman Wang Chuanfu, new energy vehicles have entered a phase of oversupply, and competition will be fierce over the next 3 to 5 years. In this big battle, those who can control the entire supply chain, manage costs, and seize market share will survive to the end.

The rise of the “smart car” concept adds a new dimension to the competition. Although limited by laws, autonomous driving technology’s upper limit remains Level 2, but ecosystem integration with other smart devices (smartphones, charging stations, automatic parking) is becoming a new decisive factor. Companies that master the smart platform will dominate the future market.

Key considerations for investing in automotive stocks

Investing in the electric vehicle industry is essentially investing in an industry cycle. The length of this cycle may be longer than we imagine, and opportunities are more abundant than we think.

But equally important is recognizing that not all participants will make it to the end. Choosing companies with complete supply chains, strong cost control, and ample technological reserves is far smarter than blindly following trends. Leading companies like Tesla, BYD, and Li Auto each have their advantages, but they also face different challenges.

In the next five years, the competitive landscape of electric vehicle stocks will undergo profound changes. To seize this opportunity, rational analysis rather than emotional hype is required.