The EV Company Out-Producing Tesla

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Good morning! It's Friday, August 18th - Tesla may be the king of the electric vehicle market, but that crown may soon be taken from them by Chinese car maker BYD. Let’s dive in!

THE FEATURE

The EV Company Out-Producing Tesla

Tesla and Chinese carmaker Build Your Dreams (BYD) both had exciting news for investors in their Q2 financial report.

For Tesla, the company announced its best quarterly results with 466,000 vehicles delivered. And for BYD, the company’s financial report showed 700,000 cars delivered– nearly double the number sold in the same quarter last year.

While there’s a lot of talk about Tesla, the future of electric vehicles (EVs) is clearly a two-horse race between BYD and Tesla.

So, What’s BYD?

BYD’s founder Wang Chuanfu became orphaned as a teenager when both of his parents died. At the time, Chuanfu wanted to drop out of high school, but his brother encouraged him to stay in school and try hard despite the hardships of life.

It was in high school that Chuanfu became fascinated with battery technology. He went on to study at the Beijing Non-Ferrous Research Institute before founding his battery startup BYD off of a loan from his cousin.

When BYD was founded in 1995, it began as a mobile phone battery, and within 10 years, BYD captured half the world’s mobile-phone battery market. 

However, Japan dominated the nickel-cadmium (NiCd) battery market at that time. Rather than directly competing in the established NiCd market, BYD turned its focus to lithium-ion battery technology.

Lithium-ion batteries caught Chuanfu’s interest because his research suggested that they could be used to develop EVs. With that in mind, BYD bought a bankrupt auto company from the Chinese government and produced the first plug-in electric vehicle.

On top of BYD selling more cars than Tesla, they still produce rechargeable batteries as well as electric buses, commercial vehicles, and monorails. By offering a wide range of clean energy solutions to the Chinese economy, BYD has an enterprise value of $89.73B and made a $2.4B profit in 2022.

How They Win: Vertical Integration

Taylor Ogan, CEO of Snow Bull Capital, stated that “BYD is the most vertically integrated company that I’ve ever seen, not just in the auto space.”

This statement is no surprise considering that BYD already mastered the practice of vertical integration when they were just a mobile phone battery manufacturing company. By conducting its own research, battery design, and development, BYD was able to get ahead of its cost-efficient Japanese competitors.

Today, very few components of BYD’s vehicles are outsourced. Through vertical integration, the company has shortened the development lifecycle and lowered the overall costs of BYD vehicles. By making everything in-house from car batteries to fiberglass bumpers, BYD’s brand has won over consumers for its affordability.

The Future of Electric Vehicles: BYD or Tesla?

Despite BYD controlling 41% of new energy vehicle sales, the company’s stock plunged 8.7% on Monday. The cause of this plunge was Tesla announcing a new round of discounts on China’s Weibo microblogging platform.

However, the price cut only amounts to $1,900 off the Long-Range and Performance versions of the Model Y Tesla. Economists believe that the price cut was the straw that broke the back of investors already concerned with China’s worsening real estate crisis.

Following Tesla’s price cuts, Wang Chuanfu spoke at a BYD event and called upon the 12 major Chinese car manufacturers to join forces and “demolish the old legends” of American auto companies.

It’s clear that electric vehicles may soon lead the automobile industry, but it is unclear whether it will be Tesla or BYD who wins the race towards EV monopoly.

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