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Despite significant regulatory inducements in a number of key markets, the global EV penetration rate has refused to budge amid lackluster demand, a pain point that Tesla has been quick to highlight. Analysts have now largely written off 2023, which has seen its first sequential decline in global EV sales in a long time, based on a comparison between the last half of 2022 and the first half of 2023. Despite this gloomy backdrop, BYD appears immune to the vagaries of the market.
While reporting its earnings for the third quarter of 2023, Tesla failed to meet consensus analyst expectations regarding its top-line and bottom-line metrics, hammered by a steep drop in its auto gross margin (ex-Regulatory Credits), which declined from 26.7 percent in Q3 2022 to just 16.3 percent in Q3 2023. To the horror of Tesla bulls, the company’s interim CFO, Vaibhav Taneja, could provide no visibility on whether Tesla’s auto gross margin (ex-RC) has, in fact, hit a cyclical nadir. What’s more, Elon Musk spent quite a bit of time during the earnings call on tempering expectations vis-a-vis the Cybertruck, identifying 2025 as a feasible target for hitting volume production on the electric pickup truck.
BYD Q3 earnings are out with new revenue and net income.
Revenue: 162.2B, up 38.5% YoY
Net income: 10.4B, up 82.2% YoY pic.twitter.com/WSVgRMJMia— Jack Shea (@RealJackShea) October 30, 2023
In sharp contrast to Tesla’s continuing travails, BYD just announced stellar earnings for Q3 2023, with revenue increasing by around 40 percent to $1.42 billion and net income nearly doubling on an annual basis. In fact, BYD’s net income grew at the fastest pace on record.
For comparison, Tesla’s stated gross margin fell to 17.9% in Q3 from 18.2% in Q2 and 25.1% a year earlier. Factoring in R&D costs, which most automakers include in their gross margin calculations, Tesla’s GM tumbled to 12.9%. https://t.co/85SxDfYdGy
— Ed Carson (@IBD_ECarson) October 30, 2023
As a testament to BYD’s trend-defying sprint, the company managed to attain a gross margin of 22.12 percent for the just-concluded quarter, constituting the highest such print since Q3 2020. In comparison, Tesla’s gross margin printed at just 17.9 percent for the pertinent period.
BYD dethroned Tesla as the largest EV manufacturer back in 2022. Since then, the Chinese giant has been aggressively selling its made-in-China EVs not only in its home market but also abroad. Concurrently, BYD has been bringing a series of offshore production facilities online to boost its sales footprint.
$TSLA increasing the price of US M-Y LR from $48,490 to $48,990 can potentially change the sentiment on TSLA if more price hikes follow. The YTD price cuts have caused 35-40% reductions in TSLA 2023 and 2024 EPS ets, and ests are what drive stock prices. If investors all… https://t.co/o75OtWB0d4 pic.twitter.com/Ba3M3a4ISp
— Gary Black (@garyblack00) October 27, 2023
Tesla, on the other hand, has been resorting to progressive price cuts to juice up the waning demand for its EVs. Following its disastrous Q3 earnings, Tesla slightly increased the price of the Long Range version of the Model Y in the US to signal to investors that a potential nadir for its auto gross margin (ex-Regulatory Credits) was now in sight. Further price hikes will only solidify this bullish viewpoint.
THREAD ON TESLA ADVERTISING
The debate on advertising has been raging for several quarters now in the Tesla retail investor community. While there are some very strong qualitative opinions on both sides, I think there is an opportunity to quantify what the advertising… pic.twitter.com/tnPmgubPwi
— James Cat (@TSLAFanMtl) October 27, 2023
Many analysts have been urging Tesla to resort to advertising instead of margin-destroying price cuts as its primary strategy to combat demand-related malaise. Should Tesla acquiesce, the company can feasibly increase its US sales by around 20 percent.
Do you think that Tesla is losing its first-mover advantage in light of BYD’s aggressive market share expansion? Let us know your thoughts in the comments section below.