With the surging market for new energy vehicles, Tesla, Inc. and BYD, as giants, have attracted a lot of attention, but there seems to be controversy over who is in the lead.

Tesla, Inc. is regarded by many as the benchmark of the industry, but hedge fund manager Taylor Ogan believes that BYD has everything about Tesla, Inc., even surpassing Tesla, Inc..

Musk likes to brag about how Tesla, Inc. will become the only vertically integrated new energy company in the world, "providing end-to-end clean energy products for customers". First of all, Tesla, Inc. 's main components still rely on external supply, which is difficult to achieve vertical integration; Tesla, Inc. is still years away from the real mass production of battery cells, and only plans to produce high-nickel cells. (Musk said at Battery Day in September that high-nickel batteries will not be produced on a large scale until 2022. )

Second, BYD is already the only vertically integrated new energy company, almost in most ways, has realized Musk's dream.

BYD has a complete industrial chain

People often say that Tesla, Inc. is not a car company. This is wrong, at least for now.Tesla, Inc. is still relying on cars to generate income.. This year, Tesla, Inc. 's car revenue (sales, leasing and regulatory deductions) accounts for 86.2% of Tesla, Inc. 's total revenue, while the energy division accounts for only 6% of total revenue, which will take several years to account for a sizeable portion.

The core of new energy vehicles is batteries. BYD started making batteries long before it produced cars in 1995.Now it has a vertically integrated new energy vehicle industry chain layout, taking the lead in large-scale production of electric buses, becoming the only car company that produces its own batteries and has a complete IGBT industrial chain.

BYD's blade battery is by far the safest and costs much less than the one used by Tesla, Inc.. Mercedes-Benz, Ford, Volkswagen and Toyota are all potential customers of BYD blade batteries. In addition, it is worth mentioning that lithium iron phosphate battery still has great potential in increasing energy density and reducing cost, and its raw materials are much more abundant than other battery chemical materials.

In essence, BYD and Tesla, Inc. are both manufacturers of new energy vehicles and solar energy, both reducing global carbon emissions, but BYD has taken green manufacturing to another level.

In 2019, BYD's seven photovoltaic projects generated a total of 50.6 million kilowatt-hours, while Tesla, Inc. solar generated 173000 kilowatt-hours, down 47 percent from the same period last year. Unlike Tesla, Inc., BYD does not stop at solar energy and passenger cars, it also produces cloud tracks and Yunba, forklifts, logistics vehicles, passenger cars, engineering vehicles, sanitation vehicles, airport vehicles, mining vehicles and port vehicles, and produces batteries for all these vehicles. Tesla, Inc. does not produce batteries yet and cannot compete with this degree of vertical integration.

Competition has come in an all-round way, and Tesla, Inc. 's market share is declining.

In the past, Tesla, Inc. has dominated the world's two largest new energy vehicle markets, China and Europe, which together account for 83 per cent of global new energy vehicle sales.

Now,Tesla, Inc. 's sales declined in Europe, faced fierce competition in China, and maintained a strong position only in the United States.(its market share in the United States has expanded to 80% from 58% in 2019. However, the United States lacks a strong new energy policy (especially without a government that supports it) and does not have a serious pollution problem, so it accounts for only 15% of the global new energy vehicle market.

Tesla, Inc. has been cutting prices across the board, more frequently than most carmakers, especially in China, indicating that it is well aware that competition is intensifying rapidly. The price of Tesla, Inc. 's bike has dropped by $2580 this year. Of this total, the starting price of the Model X has been reduced by $8000, the Model S by $10600, and the Model 3 by at least $2000.

In the past quarter, car sales in China rose for the first time in two years, with new energy vehicle sales hitting an all-time high in September, with a total sales of 138000 vehicles and a market share of 5.31 per cent.

However,Of the top 15 new energy models sold in China in September, only the Model recorded negative sales growth in March.Wuling Hongguang MINI EV surpassed Tesla, Inc. Model3 to become the best-selling new energy vehicle in China.

After the price reduction, the price of Model 3 is closer to that of "Han" and P7, but most consumers who buy "Han" and P7 have tried to drive Model 3 before. The waiting time for delivery of "Han" has been as long as three months. When NIO Inc. SUV starts production in Shanghai, it will compete directly with Model Y, which also has a very loyal customer base. In addition, NIO Inc. will launch a new sedan ET7 in NIO Day in January, which will directly compete with the long-term test / performance version of Model 3.

There are signs that even if the price is reduced,TeslaIt is also likely to lose its dominant position in the European and Chinese markets.

Tesla, Inc. relies more on regulatory credit for profit.

It is undeniable that even when the COVID-19 epidemic is sweeping the world, Tesla, Inc. is still unstoppable. The company is expected to be the only big car company with sales growth this year. Tesla, Inc. is expanding capacity and building new factories on three continents. The company has just reported its best earnings to date, and fourth-quarter growth is expected to be stronger. If Tesla, Inc. meets or approaches the delivery target of 500000 vehicles in fiscal year 20, total revenue this year could exceed $30 billion.

But it's worth noting thatTesla, Inc. 's car sales are still unprofitable, and much of the profit depends on the sale of European carbon credits.Under current EU regulatory requirements, carmakers that fail to produce enough "green" cars to meet federal standards must buy regulatory credit from companies such as Tesla, Inc.. In the past nine months alone, Tesla, Inc. 's credit sales reached $1.18 billion, with a profit margin of 100%, more than double that for the whole of 2019.

Even if the EU is likely to enforce stricter emission standards by 2030, and now that many vehicle manufacturers are accelerating the transition to electric vehicles, Tesla, Inc. 's reliance on regulatory credit to generate profits is not a long-term solution after all.

Unlike Tesla, Inc., BYD does not rely on government-regulated credit, subsidies and subsidies to make a profit. Since 2016, only one semi-annual report shows that BYD suffered a net loss when subsidies and subsidies were not included in net profit.In the first half of 2020, BYD received a subsidy of $109 million and Tesla, Inc. received $782 million to regulate credit sales.

From being imitated to imitating

With the support of the new energy policy, Chinese new energy vehicle start-ups have emerged and made many innovations in design and functions. such as dragon face / taillight, with microphone and car karaoke (which Tesla, Inc. copied from BYD), facial recognition keys, "cute" digital animation voice assistant, Wechat integration, cockpit front camera for car selfies. As well as the CN95 certified PM2.5 pollution filtration system and remote high temperature disinfection and sterilization mode.

Tesla, Inc. began to "curry favor" with Chinese consumers, making in-car games specifically for the Chinese market, and plans to build a car inspired by Chinese art, recruiting software developers and IT engineers in China. Tesla, Inc. is learning from the car companies that have imitated it.

Quality has almost always been a concern for Tesla, Inc., while BYD has a "zero tolerance" policy for defects-none of its cars were recalled in 2019. When Tesla, Inc. focuses on sales volume, energy density and promises beyond its capabilities, BYD instead focuses on improving the production line to ensure product quality and safety. This is not surprising, since BYD's production line is about 95% mai 99%, while the Tesla Fremont plant is less automated.

Potential risk comparison

Tesla, Inc. 's share price has more than tripled this year, with catalysts such as the FSD plan, dominance of the booming electric car market, capacity expansion and battery days. In fact, FSD is not as good as Musk promised, market share is declining, capacity utilization is underutilized, and battery day is disappointing.

Since battery day on September 23rd, Tesla, Inc. has fallen 3 per cent, while Byd Company Limited has risen 45 per cent.

The weakness of Tesla, Inc. reflects several dangerous signals that have emerged recently:

• In the two largest new energy vehicle markets, Tesla, Inc. not only lost market share because of increased competition, but also sales growth stagnated.

• Tesla, Inc. began exporting Chinese-made Model 3 to Europe much earlier than expected.

• Reduce the price across the board.

• It will take at least three years for products released on battery day to be mass produced on a large scale.

• Return policies and used car warranty services are shrinking, suggesting that years of quality problems are beginning to hurt Tesla, Inc..

Another potential red flag to watch over the next six months is the production of a right-rudder version of the Model 3 in the Shanghai super factory, which will mean a serious decline in demand for Model 3 in left-rudder markets such as Europe, China and South Korea.

In terms of risk, BYD is the same as all car companies.The price of raw materials goes up.BYD may pose a threat, but it is more vertically integrated and more responsive than any other new energy vehicle maker.

Sino-US Trade frictions and the results of the US ElectionThe threat from BYD is also small, as BYD derives most of its revenue from China, with only 3 per cent of its revenue from the US, while Tesla, Inc. derives 19 per cent of its income from China.

In terms of valuation, Taylor Ogan believes that Tesla, Inc. can be valued as many times as possible, but compared with the sales of new energy vehicles, BYD is still greatly undervalued. After all, BYD has been profitable every year since the 1990s.