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this article is written based on public information and is only for information exchange purposes. it does not constitute any investment advice

in 2024, the new energy vehicle market will be more dramatic than most people can imagine. let’s start with the data.

byd： 

in the second quarter of 2024, the company's revenue was 176.2 billion yuan, a year-on-year increase of 26%, and its net profit was 9.1 billion yuan, a year-on-year increase of 33%. the overall gross profit margin was 19%, and the estimated gross profit margin was more than 22% excluding byd electronics. the company's overall sales in the second quarter were 987,000 vehicles, a year-on-year increase of 40%.

tesla： 

in the second quarter of 2024, the total revenue was us$25.5 billion, of which automotive revenue was us$19.9 billion, a year-on-year decrease of 7%, and net profit was us$1.81 billion, a year-on-year decrease of 42%. the overall gross profit margin was 18%, and the automotive gross profit margin was 18.5%. the total delivery volume in the second quarter was about 444,000 vehicles, a year-on-year decrease of 5%.

judging from the revenue and net profit volume in the second quarter, the former is actually very close to the latter.

as one grows stronger while the other declines, byd and tesla, two automobile companies that were basically in parallel universes, have now met on a narrow road.

01 byd's big year

1. prejudices along the way 

byd's achievements this year are truly admirable. looking back, unlike other new domestic car-making forces that can enjoy overwhelming traffic, byd has grown all the way without traffic, mostly due to prejudice.

it was considered to have no strength and started with a three. in 2003, after obtaining a license, byd officially started its automobile business, but it could only survive among the three mountains of foreign capital, joint ventures and state-owned capital, and was not favored by everyone. of course, 20 years later, it has firmly established itself as the domestic company with the largest market value.

it is considered to have no strategy and has repeatedly been slapped in the face afterwards. in 2004, the company launched two pure electric passenger cars at the same time as tesla, and can be regarded as the originator of domestic new energy vehicles. in 2022, byd made a bold decision to stop producing fuel vehicles and fully transform to new energy.great wall、auspicious,public,bmwa number of chinese and foreign car companies are still struggling painfully in the fight between their left and right hands.

then they were criticized for not having the technology. byd, which has been playing with new energy for 30 years, has basically not made any big mistakes in its technology route. even four years ago, there was still a heated debate about whether hybrid vehicles had no prospects, but the facts have proved that hybrid vehicles have great potential. byd launched its first plug-in hybrid in 2008, and now it has mastered hybrid vehicles to perfection. in addition, byd's blade battery, which was once very popular, also proved the strength of its core technology.

of course, some people think that byd is integrated and squeezes the supply chain. but as one of the few profitable domestic new energy vehicles, it uses a 22% gross profit margin to prove that others are amateurs. there are many other prejudices.

2. the era of iq tax will be gone forever 

the last point that byd was criticized for was its brand power.

in 2023, byd's sales will exceed 3 million vehicles for the first time. with the launch of the dmi5.0 platform, the company will also usher in a major facelift, with core indicators such as fuel consumption and driving range leading the industry by at least one year. with the support of this platform, byd is expected to achieve 4 million vehicles this year, and 5 million vehicles may be achieved as early as 2026.

so what does this have to do with brand power?

byd's main market is in china, where the domestic automobile market has long been in the stock market. so who will take the market share of the 2 million units in the future? the answer is the seemingly high-profile but already precarious joint venture.

currently, the annual sales volume of a and b class cars and suvs in china is around 12 million, and joint venture brands account for more than half of the total market share.

in the first half of this year, even a once noble company like bba could only survive by cutting prices. it was even more difficult for other joint ventures. their operating difficulties can be seen from their interim reports this year. moreover, it is said that the existing production capacity will be withdrawn by 10 million vehicles. too many people have been offended that i will not name them here.

as domestically produced cars such as byd, xiaomi, and ideal crush joint ventures in terms of both price-performance and reputation, the era of "iq tax" where cars can be sold for tens of thousands or even hundreds of thousands of yuan more by relying on a logo will eventually be gone. it won't be too far away. next year is expected to be the year when joint ventures will accelerate their collapse.

figure: byd auto sales forecast source: china passenger car association, soochow securities

02 tesla's little year

tesla's poor performance this year is not surprising. the core reason is the lack of successors to its models.

of the 444,000 units delivered in the second quarter of this year,Model 3andModel Ythe delivery volume accounts for 95%. no matter how strong the product is, it cannot withstand aesthetic fatigue.

moreover, the dividends of model 3 and model y from eating into the market share of bba have come to an end, and sales have declined this year. another dividend is the globalization of the supply chain, which has also come to an end in the past three years as chinese factories have reached full production.

what's more, what you have is already available to others, and at a lower price than yours.

then, although the highly anticipated cybertruck was finally delivered in november 2023 and had a backlog of over one million orders, it was too difficult to manufacture and there were even reports recently that tesla had stopped accepting orders.

in 2024, only stories will support tesla's high valuation. in the atmosphere of the nasdaq bull market, musk can also rely on concepts such as fsd entering china, humanoid robots, autonomous driving, robotaxi, dojo, etc.

03 parallel universes finally meet

in the past five years, one of them was buying like crazy in the price range above 300,000, and the other was making a lot of money in the price range below 300,000, but the two have never met each other.

even until 2024, tesla and byd are still players in two completely parallel worlds. but after a small year and a big year, the gap between the two has been bridged.

if we say that before, new energy vehicle companies were unilaterally strangling traditional fuel vehicle companies, then starting from 2025, the internal fight within the new energy industry will officially begin. 

1. byd's three major growth points collide head-on with tesla 

after becoming a hexagonal warrior, where will byd's long-term growth point be? in fact, byd's future direction is basically clear, that is, high-end, intelligent and overseas.

the automobile market is the same as the mobile phone market. the low-end price range has large volumes but thin profits. byd's profit per car is less than 10,000 yuan, and it relies on its scale advantage and vertical integration strategy that is difficult to replicate. high-end luxury cars, although small in volume, can easily make tens of thousands of yuan per car, which is a cake with much larger profit margins.

the annual sales volume of high-end cars priced above 300,000 yuan in china alone is close to 5 million, and it is mainly monopolized by bba, joint ventures and tesla. however, among new energy vehicle companies, ideal and huawei have already blazed a trail, and byd is stepping up to catch up. therefore, denza, yangwang,equation leopardwith these three measures in place, the publicity efforts have been significantly increased. if the total sales this year can maintain at 150,000 units, it will have the strength to enter the high-end market in the future.

if we were to say where byd's real weakness was in the past, it was in intelligence. but this is understandable. it is not logical to ask a car company with an average price of less than 150,000 yuan to invest heavily in intelligence. but as byd wants to break through the high-end market, it has to go intelligent.

since 2021, byd has invested in horizon robotics to enter the field of autonomous driving chips and established a joint venture with momenta to develop its own intelligent driving algorithm. it can be seen that byd's autonomous driving has penetrated into the underlying technology. in terms of vehicle models, the intelligent driving platform is also reasonably divided into three versions:

based on the horizon single journey 5 solution, in the 200,000 yuan levelchinesethe models are put into mass production;

based on nvidia's single orinx with dual laser radar solution, in the 300,000 yuan levelbyd n7go into mass production;

based on nvidia's dual orinx and triple laser radar solution, it is installed on a 1.1 million yuan high-end car model.

the last piece of the puzzle is going global. it can be said that byd is serious about going global this time. in the latest second quarter report, byd sold 106,000 vehicles, accounting for 11%. it is the only large-cap automaker in the world that has not achieved globalization.

whether a car company wants to go global or not, don’t listen to what it says, just look at one point, that is, whether it has built production capacity overseas. talking big doesn’t cost money, but building production capacity is the real all-in.

in recent years, byd has aggressively deployed production capacity in hungary, thailand, brazil, uzbekistan, indonesia and other places. the layout of factories across multiple continents clearly shows that the company's ambition is on the entire world map. moreover, the clearly planned production capacity has reached 1 million vehicles, which is the same size as tesla's shanghai factory.

with the full implementation of its high-end, intelligent and overseas strategies, byd will face tesla head-on.

2. tesla's new growth point will also encounter byd 

tesla, which has encountered a growth bottleneck, is getting closer to the time when it will roll up the low-end market.

first of all, this is in line with musk's product planning roadmap. continuously lowering prices to make technology affordable is indeed his consistent pursuit. on the other hand, more and more product information began to surface.

the latest news is that tesla plans to start production of a more economical electric car in the first half of 2025. this is the model 2 or model q that has been rumored for several years. the price is rumored to be between 160,000 and 180,000 yuan, which completely covers byd's price range. it is said that the maximum production capacity of this model is expected to be close to 3 million units, and foxconn may be its oem.

taking into account the current annual sales of more than 1 million vehicles of 3 and y, the future cybertruck sales of hundreds of thousands of vehicles, and the 3 million vehicles of model 2, tesla's future annual sales can be expected to be 5 million vehicles, which collides with byd's 5 million vehicles.

therefore, starting from 2025, these two automakers, which were basically not put together before, will be frequently compared in all aspects in terms of product strength, price range, production and sales volume, supply chain, etc.

just as musk was asked in an interview in 2011 what he thought of byd, musk replied: have you seen byd cars on the market? in 2023, the boomerang of the times hit musk right in the middle of his brow. of course, he also responded positively that byd has become very competitive after so many years of development.

by next year, one of the most frequently asked questions in tesla's conference calls will probably be how to deal with competition from byd.

3. facing the strength of domestic brands is a bigger game of eliminating prejudice 

sales volume doesn’t lie. byd and tesla, which were originally in parallel universes, will have to compete fiercely starting next year, even though they never regarded each other as competitors.

the other side of the coin is that our domestic independent brand car companies have repeatedly refreshed everyone's three views by punching fuel vehicles and stepping on joint ventures. now they have officially set their sights on tesla, the world's number one, it is hard not to be in awe.

but even so, the strength of domestic independent new energy brands is still seriously underestimated in a wide range of prejudices. this prejudice is bound to have an opportunity to be corrected in 2025 when domestic brands compete with tesla.

there are two potential challenges: 

the first is that as mentioned before, tesla will solve the model problem next year, and autonomous driving is accelerating. the golden window period left for domestic automakers is only one year. whether the gap will widen again in the future is worth watching.

the second is that the internal competition among domestic independent brands is too serious. byd's brilliant performance and the great success of the newly entered xiaomi motors, which has achieved a gross profit margin of 15%, have verified that supply chain management is the core competitiveness of domestic automakers. in the future, the supply chain will only become more competitive, and the back-stabbing between domestic automakers will become more serious.

no matter byd, which does not want to compete with tesla, or all the new car-making forces that learn from tesla, no one intends to fight tesla head-on. however, with the rise of domestic independent brand new energy vehicles and their accelerated globalization, competition with tesla in the existing market will be inevitable.

this is also what we think is the biggest and most interesting variable in the new energy vehicle industry in 2025.