As Tesla Inc. (TSLA) is busy checking its blind spots, a less-glitzy electric carmaker from China is ripping by and showing no signs of slowing down. Its name is BYD Co., and unlike Tesla, the company has focused on the middle-class consumer rather than the luxury buyer. The automaker is now the global leader in the production of electric vehicles (EVs) and has the support of the world’s No. 1 stock picker, Warren Buffet, who acquired a 10% stake in the company 10 years ago, according to a recent story in Bloomberg Businessweek.
How Buffett’s BYD Outshines Tesla
- BYD is no. 1 in producing EVs, Tesla is no. 1 in attracting attention.
- BYD targets middle-class, while Tesla targets premium car market.
- Sales picking up for BYD, while Tesla experiences declines.
- BYD is backed by Buffet, who has openly criticized Tesla’s Musk.
What It Means for Investors
Since its founding in 1995 as a producer of batteries for cellphones and laptops, BYD has transformed itself into the world’s No. 1 producer of EVs. The company employees nearly a quarter million people and sells approximately 30,000 pure EVs or plug-in hybrids every month in China.
Unlike Tesla’s focus on the premium car market, BYD has built its business around affordable vehicles for the middle class. Tesla’s cheapest model, the Model 3, starts at about $35,000, and the standard version of its recently unveiled model Y is set to arrive in the spring of 2021 for about $39,000. By contrast, BYD’s SUV model, the Tang, retails from about 240,000 yuan ($35,700) and its cheapest model, the e1, starts at 60,000 yuan ($8,950) after subsidies.
Indeed, subsidies for EVs offered by the Chinese government are what gives Chinese companies like BYD a major competitive advantage over automakers in other countries. China has made switching to EVs one of its national priorities with the government offering as much as $7,900 to purchasers of long-range, pure-electric vehicles. Meanwhile, U.S. President Donald Trump has proposed eliminating subsidies for EV purchases, according to Bloomberg.
With China doing more than any other country to promote a speedy transition to EVs, BYD is well-positioned to continue its dominance in production of those vehicles. Whether or not it will be able to hold onto that dominance longer term is another matter. Already Volkswagen AG, Ford Motor Co. (F), and other auto manufacturers are increasingly eyeing China’s massive market. Even Tesla is building a factory in China, hoping to take advantage of that market and government subsidies. But these outsiders may just arrive in time for those subsidies to be rolled back.