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In the global electric vehicle race, Chinese automakers are accelerating their overtaking with their unique cost advantages. According to previous media reports, Chinese electric vehicles have occupied 11% of the EU market share. In the Southeast Asian market, 85% of Thailand's electric vehicle sales last year came from China.

According to Barclays’ analysis, China’s cost advantage in electric vehicles is mainly due to the widespread adoption of lower-cost lithium iron phosphate (LFP) batteries, a mature domestic supply chain, economies of scale, and vertically integrated production.These factors together provide Chinese automakers such as BYD with a cost advantage of up to 40% over their overseas counterparts.

Mainly strong in batteries and supply chain

First, China’s cost advantage in electric vehicles is not accidental, but has structural reasons.

Jiong Shao and other Barclays analysts recently pointed out in a research report that Chinese automakers are more widely adopting LFP batteries, and China occupies a global leading position in the production of LFP batteries. The tariffs imposed by Western countries on such batteries have undoubtedly increased the production costs of Western automakers. Despite this, the costs of Chinese automakers are nearly 40% lower than those of the West.

Secondly, China has a mature supply chain system and economies of scale, which provide strong support for electric vehicle companies.

Barclays pointed out that domestic suppliers are willing to accept lower prices, especially in cooperation with large electric vehicle companies, and this power imbalance has further reduced costs. In addition, with the rapid integration of the market, a similar integration trend is expected to occur in the supply chain, which will further drive cost reductions.

When talking about cost advantages, we have to mention BYD's vertical integration strategy.

It is reported that BYD has achieved a significant reduction in costs by producing batteries and most of the car components by itself. The economy of scale brought by its monthly sales of more than 300,000 vehicles has made BYD rank among the top in China and even the world in terms of gross profit margin of electric vehicles. BYD continues to invest profits in research and development and promote technological innovation to maintain its leading position in the industry.

Technological innovation is another major driver of cost reduction. Barclays pointed out that BYD's upcoming new generation of LFP batteries is expected to provide longer driving range and better performance. In addition, its newly launched DM 5.0 plug-in hybrid technology is expected to enable a driving range of at least 1,300 miles, even if the battery is not pre-charged. These technological advances not only enhance product competitiveness, but are also an effective way to reduce costs.

Cost comparison between Xiaomi, BYD and Tesla

The report also pointed out that although Chinese electric vehicle companies face fierce market competition and geopolitical uncertainties, their structural cost advantages and technological innovation capabilities have enabled them to occupy a favorable position in the global new energy vehicle market. Barclays predicts thatAs the market continues to develop and integrate, Chinese electric vehicle companies will continue to maintain their cost competitiveness.

Take Xiaomi SU7 Pro as an example, the price is less than 245,900 yuan.Barclays expects gross margins, excluding research and development and advertising costs, to be around 9%.

The power system accounts for about 41% of the cost, of which CATL's LFP battery costs about 60,000 yuan, the battery management system and the electric motor cost about 15,000 yuan and 7,000 yuan respectively. The body, interior and chassis cost account for 49%, and the manufacturing cost accounts for 10%.

Barclays expects Xiaomi SU7's gross profit margin to decline after deducting R&D and advertising costs.This year it is expected to be 5%, towards the low end of the company's guidance.

Barclays' research report also mentioned that as Xiaomi's car deliveries increase, the initial infrastructure investment costs will be spread, thereby increasing gross profit margin.

BYD has a significant cost advantage in the Qin series. Taking the Qin Plus DM-i (plug-in hybrid vehicle, starting at RMB 79,800) as an example, Barclays estimates that its gross profit margin (excluding R&D and advertising costs) is about 9%, which is comparable to Xiaomi SU7, but with lower absolute costs.

The power system cost is about RMB 23,000, accounting for 36% of the total cost; the body, chassis and interior cost is about RMB 33,000, accounting for 52%; the manufacturing cost is about RMB 8,000, accounting for only 13%. After recalculating the battery cost of Qin Plus (pure electric vehicle, starting price RMB 109,800),The gross profit margin is as high as 18%.

Barclays believes that BYD's economies of scale, vertical integration and technological innovation give it an advantage in cost control, especially in high-priced models, which provides more flexibility for price adjustments.

Benefiting from China's cost advantages, Tesla has an absolute advantage in manufacturing costs in China.

Taking the Model Y produced by Tesla's Shanghai Super Factory as an example, Barclays estimates that its manufacturing cost (excluding R&D and advertising costs) is estimated to be RMB 197,400 (about US$27,400), which is comparable to Xiaomi SU7 Pro and BYD Qin Plus.The gross profit margin is approximately 24%.

In comparison, the weighted average selling price of Tesla's overseas version of Model Y is US$50,000 (RMB 360,000). Barclays estimates that the vehicle manufacturing cost (excluding R&D and advertising costs) is US$43,200, orThe vehicle gross profit margin is 14%, which is about half of the gross profit margin of the domestically produced Model Y.