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When a new market emerges, a scaling race begins. In the case of electric vehicles (EVs), companies have to consider charging infrastructure, cost of raw materials for batteries, EV performance itself, and affordability. These scaling barriers are additionally affected by government incentives. For instance, nearly all EVs sold in China are exempt from vehicle purchase tax. In the US, Tesla greatly benefited from so-called green credits (ZEVs), which it can sell to other automakers if they meet carbon emissions criteria.Presently, most EV surveys find that price, range, and chargeability are the greatest obstacles to EV mass adoption. While younger adults are more likely to buy an EV (48%), electric vehicles still remain out of reach (46%) for average consumers making under $30,000.With these adoption hurdles in mind, which non-US companies are best positioned to scale EV production efficiently?
BYD Company Ltd. (OTC: BYDDY)
At the recent viral NYT DealBook appearance, Tesla CEO Elon Musk noted that China represents his biggest rival despite Tesla’s dominance over the US EV market.
“China is super good at manufacturing, and the work ethic is incredible. If we consider different leagues of competitiveness at Tesla, we consider the Chinese league to be the most competitive.”
Chinese multinational BYD represents the EV scaling effort the most. BYD holds 18.4% of EV plug-in market share globally, ahead of Tesla’s 13%. In China, BYD is dominant among the top five models: BYD Song, BYD Qin Plus, BYD Seagull, and BYD Yuan Plus. Tesla’s Model Y was in third place with 41,428 units sold as of September, per CleanTechnica. At around $27,500 for BYD Seal base model, it is cheaper than the Tesla Model 3 RWD at $28,490 while having comparable range performance.Greater government subsidies further boost China’s EV scaling. EV companies in China get 5x more subsidies than their US counterparts, and the government also extended vehicle purchase tax exemption to 2027. This resulted in the “flood” of Chinese EVs to the EU, triggering an EU Commission investigation into artificial pricing “by huge state subsidies.” For Q3 2023, BYD mirrored this growth in the earnings report, having increased operating revenue by 38.49%. Likewise, BYD’s net profit increased 80.95% from a year-ago quarter.BYD stock took a 14% dive in November due to higher gross margins and mutually aggressive price cutting between Tesla and BYD. Although now even-footed in BEV sales with Tesla, at 431,603 in Q3 vs Tesla’s 435,059, BYD is aggressively expanding.In 2024, BYD’s two factories are coming online, in Thailand and Brazil, with Hungary likely being the candidate for another factory announcement in the eurozone.For investors who want exposure to this expansion, BYD stocks are available directly on the Hong Kong exchange (HKEX). The alternative is through the purchase of American Depositary Receipts (ADRs) on over-the-counter (OTC) brokerages under the ticker BYDDY.
Nio Inc. (NYSE: NIO)
Also a beneficiary of China’s generous EV subsidies, Nio caters to the premium sector of the market, with Nio ET5 starting at $41,900. This week, on December 5th, Nio will deliver its Q3 2023 financial results. For the quarter, the company guided deliveries of 55,000 – 57,000, up 74% -80% from the year-ago quarter.Revenue is expected to go up 45% to 50% between $2.61 billion and $2.92 billion. In addition to designing and manufacturing premium EVs, Nio sells related infrastructure services, from charging to battery-swapping stations. Based on 13 analyst inputs pulled by Nasdaq, NIO stock is a “buy.” The average NIO price target is $14.38 vs the current $7.13. The high estimate is $19.2, while the low forecast is above the current price at $8 per share.
Toyota Motor Corporation (TM)
The largest Japanese global automaker popularized the concept of hybrid vehicles with the Prius series. Cheaper, more practical, and fuel-efficient hybrids have become a bridge to full EV commitment. The market positively reacted to Toyota’s latest hybrid contribution, the plug-in Prius Prime, having received a 9/10 rating from C/D. However, Toyota’s long-term goal is to ramp up full EV production to 1.7 million annually by 2030. To that end, the company will deploy its next-gen BEV technology with a hydrogen business strategy.Toyota successfully caters to the still-large segment that doesn’t want to ditch non-EVs. In November’s Q2 FY2024, the company reported a 121.1% increase in net income from a year-ago quarter. Year-over-year, Toyota’s hybrids went up 41% to 880,000 sold units.Tellingly, the sale of Toyota’s plug-in hybrids went up 90% for the same period. This proves the company’s cautious approach, by focusing on cost-effective hybrids instead of full EVs, paid off. With a strong hybrid demand, TM stock went up 38% year-to-date.WSJ’s average TM price target is $208.65 vs current $191.54. The high estimate is $247.37, while the low forecast is $156.04 per share.More By This Author:Why 2024 Could Be A Massive Year For US Equities
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