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After a horrendous 2023 - characterized by persistently muted demand for electric vehicles, especially when compared with rosy projections for the industry at the turn of the decade - much of the EV industry lies in tatters for believing in the false paradigm that there would always be enough demand for electric vehicles, that you can sell whatever you produce. This patch of inky darkness has so far spared two of the industry's biggest players, Tesla and BYD, courtesy of the proverbial hell that they have unleashed on the rest of the EV players by engaging in an escalating price war.
Do note that the overall volume of EV sales continues to grow. For instance, global EV sales were up 49 percent on an annual basis in H1 2023 to 6.2 million units. It is the emerging duopoly of Tesla and BYD, however, that is creating phenomenal challenges for the rest of the EV industry. As a case in point, consider the fact that General Motors and Ford were recently compelled by market forces to dramatically downgrade their EV-related ambitions.
Interestingly, this global demand malaise comes at a time when the price of lithium - a key cost component for electric vehicle batteries - has plunged by 78 percent over the past 12 months on overcapacity concerns. This suggests that the relatively high cost of EVs - particularly in a rising interest rate environment that makes car financing progressively prohibitive - is not the only factor in this emergent weakness. After all, EVs were selling like hotcakes a few years back, and that too at a substantially higher average price point. Perhaps, range anxiety and the dramatically lower resale value of EVs is something that the industry should look to address.
$TSLA , $NIO , $XPENG on watch after that $BYD is allegedly planning to slash prices more in order to boost year-end sales. $BYD -5.5% in Hong Kong. @business cited a Chinese review website, whose reference is local dealers. The BEVs 🇨🇳 war continues‼️ 🔋🚘 pic.twitter.com/J7XrsXXW77
— EdwarDiGi (@EdwardDiGi) November 24, 2023
Coming back, Tesla and BYD are trying their best to capture the largest pie of the EV market by supplementing their well-telegraphed price cuts with stealthy, time-barred discounts. For instance, rumors emerged last week that BYD was on the cusp of slashing the price of its Dynasty series EV models to boost sales growth ahead of the year's end. Even though BYD later clarified that the price cuts pertained to November only, the company's shares have been notably weaker in Hong Kong trading.
Tesla Model Y sold only 14% fewer vehicles than China's most popular BEV, the BYD Yuan Plus, despite the Model Y's 66% to 108% higher price point. https://t.co/71splWhk4Z pic.twitter.com/KvilUSEvqg
— Sawyer Merritt (@SawyerMerritt) November 27, 2023
Right now, Tesla appears to have an edge over BYD in China. Consider the fact that Tesla's Model Y in China is clocking in sales volumes that are just 14 percent lower than the Asian giant's most popular EV - BYD's Yuan Plus - despite bearing a price tag that is at least 66 percent higher.
Nonetheless, some Wall Street analysts continue to maintain that BYD's eventual victory over Tesla is not a question of if but when.
Bernstein Analysts Reiterate Their Dim View On Tesla But Remain Quite Optimistic On BYD's Prospects
TESLA $TSLA price-target reiterated at $150, underweight by Bernstein, implying -36% of downside:
"We struggle to bridge the $600B+ valuation gap that exists between Tesla and BYD, and rate TSLA Underperform, and BYD Outperform. We believe that in the long term, valuations…
— Stock Talk (@stocktalkweekly) November 27, 2023
This brings us to the crux of the matter. The analysts at Bernstein reiterated a stock price target of $150 per share for Tesla today, implying a downside potential of around 36 percent. The investment note contended:
"We believe that in the long term, valuations matter, and based on fundamentals, valuations between Tesla and BYD are more likely to converge than diverge."
It then goes on to note:
"For BYD, the top debate is around margin[s], but we are constructive on BYD's near- to medium-term margin outlook, given tailwinds from premiumization and export."
Lines were out the door at $TSLA stores across the country to view the Cybertruck this weekend, which could boost orders of all TSLA models in December. https://t.co/n12vWwY5G8
— Gary Black (@garyblack00) November 27, 2023
For Tesla, one of the biggest upcoming catalysts is the imminent launch of the Cybertruck. Over this Thanksgiving weekend, crowds thronged to see Tesla's latest offering displayed at its stores throughout the US. This does suggest sizable interest in the new electric pickup truck that should, in theory, increase the visibility of Tesla's entire EV lineup in the minds of the consumers. Of course, the fact that the Cybertruck is not expected to enter volume production until 2025 limits its bullish influence on the company's near-term financials.
Agreed. BYD will not top Tesla BEV sales for full-year 2023.
I'm sure we'll get many backward-looking charts well into next year on this point.
— Ed Carson (@IBD_ECarson) November 27, 2023
For now, Tesla appears to be manning its guard towers against BYD's onslaught quite well. The question remains: for how long?
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