BYD Surpasses Tesla in Electric Vehicle Competition, Boasting Impressive Gross Profit Margins

Credit: BYD

Chinese automaker BYD has positioned itself as a formidable competitor to Tesla, not only in terms of electric vehicle specifications but also in gross profit margins. The driving force behind this success, according to renowned investor Charlie Munger, lies in the adept leadership of BYD's CEO, Wang Chuanfu, who possesses a unique ability to create products, be it cars or batteries.

Munger, Vice Chairman of Berkshire Hathaway and an early investor in BYD's automotive endeavors, described Wang Chuanfu as "a fanatic who knows how to actually make things with his hands." He emphasized that Wang is closely connected to the production process, making him instrumental in BYD's manufacturing excellence.

Munger went on to draw a distinct comparison between Wang Chuanfu and Elon Musk, suggesting that BYD's CEO outperforms Musk when it comes to hands-on production. Munger's praise for Wang was evident as he credited him for BYD's impressive progress despite the challenging conditions in the auto industry, including concerns related to unions and uncertainties regarding the pace of the electric vehicle transition.

BYD's strategic bets are clearly paying off. The company recently reported a gross profit margin exceeding 25%, a substantial lead over Tesla's 17% in the third quarter. While Tesla still maintains the highest profit per vehicle in the industry, that metric has seen a significant decline from its peak. In contrast, BYD has achieved record profits per unit produced and has nearly matched Tesla's electric vehicle sales figures.

A local analyst attributes BYD's remarkable financial performance to its manufacturing expertise and vertical integration as an electric vehicle battery manufacturer. Xu Huixiong from Essence Securities noted that increased production volumes have led to more significant economies of scale, resulting in lowered average depreciation and amortization per vehicle. Furthermore, a decrease in the price of battery-grade lithium carbonate has contributed to reduced costs per vehicle.

BYD's strategy of steering customers toward vehicle models with higher gross margins has also played a pivotal role in its success. The company reported a 27% increase in sales of these high-margin models in the most recent quarter.

BYD's remarkable achievements in the electric vehicle market underscore the impact of strong leadership and manufacturing capabilities in an industry undergoing rapid transformation.

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