The electric vehicle (EV) race is heating up on the global stage. Recent data shows Chinese automaker BYD has overtaken Tesla as the top selling EV maker in the fourth quarter of 2023. BYD sold over 525,000 battery electric vehicles from October to December, surpassing Tesla’s nearly 485,000 deliveries.
This shift signals China’s rising prominence as a major force in the EV industry. With enormous growth potential in the world’s largest auto market, Chinese companies like BYD are positioned to reshape the competitive landscape. Their success has wide-ranging implications for investors across the auto and battery supply chains.
BYD’s meteoric growth is fueled by China’s EV-friendly policies. The government has implemented aggressive targets, mandating that new energy vehicles comprise 20% of sales by 2025 and become mainstream by 2035. China is reaching these goals years ahead of schedule thanks to subsidies and infrastructure spending. New energy vehicle sales exceeded 30% of the market in the first 11 months of 2023.
Tesla still led BYD in total global EV sales for full-year 2023, delivering 1.8 million vehicles versus BYD’s 1.57 million. But BYD is closing the gap rapidly, with sales up 73% last year. The company aims to double its international dealer network in 2023 and boost overseas sales five-fold.
To accommodate this growth, BYD plans to construct its first passenger EV plant in Europe. The facility in Hungary will complement BYD’s existing European bus factory. This international expansion mirrors China’s broader effort to increase exports and take on traditional automakers like Volkswagen and Renault in their home markets.
The intense competition has sparked a price war in China, with Tesla and others slashing costs in 2022 to retain market share. While this boosted sales, it eroded industry profit margins. Surging raw material prices also squeezed margins across the supply chain. Battery-grade lithium carbonate rose over 280% last year.
Sourcing enough lithium and other battery metals remains a concern. According to Benchmark Mineral Intelligence, demand growth for lithium-ion batteries will require global lithium supply to expand eight-fold by 2030. Companies are racing to secure upstream supplies and lithium producers’ stocks have benefited.
But the launch of new mines takes time. Geopolitical factors may also constrain near-term growth in critical mineral supply from key regions like South America. This supply/demand imbalance poses a risk to the pace of EV adoption worldwide.
Investors will closely watch how BYD navigates these headwinds. Vertically integrated automakers like BYD with control over more battery and mineral assets may have an advantage. But no company is immune from margin compression if prices remain elevated.
Regardless, China’s trajectory toward EV supremacy seems clear. The country boasts advantages in scale, cost, and the supply chain that will be difficult for rivals to replicate. Tesla’s position appears secure as the leading global luxury EV brand. But Chinese automakers are poised to dominate the larger mass-market segments.
For investors, this reshuffled landscape demands a reassessment of portfolio positioning. Companies tied to China’s booming EV ecosystem warrant consideration. However, risks around growth assumptions, valuation, and competitive dynamics in a rapidly evolving industry must be weighed. While the road ahead remains challenging, China has signaled plans to set the pace in the global EV race.
