In terms of revenue, BYD has outperformed Tesla, but its market value is less than 900 billion RMB, only about one-sixth of Tesla's. Why does the capital market favor Tesla while underestimating BYD?
At the end of October, BYD announced its Q3 2024 financial report, showing a revenue of 201.1 billion RMB, a 24% year-on-year increase. In contrast, Tesla's Q3 revenue was 25.1 billion USD, approximately 176.4 billion RMB, marking the first time in nearly three years that BYD's quarterly revenue has surpassed Tesla's.
BYD's Q3 net profit reached 11.6 billion RMB, an 11% increase year-on-year, though the growth rate has slowed compared to the first half of the year. From Q1 to Q3 2024. BYD's cumulative revenue was 502.2 billion RMB, a 19% increase, with a net profit of 25.2 billion RMB, an 18% increase.
On the day the financial report was released, despite a general rise in the stock market, BYD's A-shares and Hong Kong stocks both fell sharply, resulting in a market value evaporation of over 30 billion RMB, possibly due to the slowdown in net profit growth in Q3.
On October 23. Tesla released its Q3 results, reporting a quarterly revenue of approximately 176.46 billion RMB, a 5% year-on-year increase, and a net profit of about 15.18 billion RMB, up 14% year-on-year, with a quarterly gross margin of 19.8%, a 2 percentage point increase compared to the same period last year.
For the first three quarters of this year, Tesla's cumulative revenue was approximately 509.32 billion RMB, unchanged from the previous year, while its cumulative net profit was 33.728 billion RMB, a 33% decrease, with a gross margin of 18.4%, consistent with last year.
Examining the cumulative data from the first three quarters, Tesla's financial report lacks highlights. While Q3 revenue and net profit show slight improvements, it's difficult to say there were significant surprises. Nevertheless, this report led to a 22% increase in Tesla's stock price on the same day, pushing its total market value to nearly 6 trillion RMB, reaching a nearly one-year high. Based on linear extrapolation of the first three quarters' revenue and profit, Tesla's current price-to-earnings (P/E) ratio exceeds 100.
Although BYD's revenue surpasses Tesla's, its market value is still less than 900 billion RMB, just one-sixth of Tesla's. Why does the capital market favor Tesla while underestimating BYD?
BYD's Revenue Closely Pursues Tesla
If we only look at market value comparisons, one might assume a significant gap between BYD and Tesla in terms of revenue and profit. Three years ago, this was indeed the case.
Back in late 2021. Tesla's stock price surged above $1.200. achieving a market value of 1 trillion USD. In 2021. Tesla's revenue was 343.1 billion RMB, with a net profit of 35.18 billion RMB, while BYD's revenue was 213 billion RMB, only 62% of Tesla's, and its net profit had just crossed 3 billion RMB, less than one-tenth of Tesla's.
At that time, the net profit gap was tenfold. BYD's market value of 700 billion RMB seemed less incongruous next to Tesla's 7 trillion RMB market cap.
As domestic sales of new energy vehicles soared, BYD reached milestones of 3 million, 5 million, and 8 million electric vehicles, rapidly closing the gap in revenue and net profit.
In the first three quarters of this year, Tesla reported a revenue of 509.3 billion RMB and a net profit of 33.728 billion RMB, while BYD's revenue and net profit were 502.2 billion RMB and 25.2 billion RMB, respectively. BYD's revenue is nearly equal to Tesla's, with its net profit reaching 75% of Tesla's, significantly narrowing the gap between the two companies.
It is worth noting that both companies have additional business segments apart from automotive sales.
In the first three quarters, 80% of BYD's revenue came from its automotive segment, with around 20% from mobile phone components and assembly. BYD's listed entity holds a controlling stake in BYD (International) Electronics, which primarily focuses on mobile phone assembly. Its revenues, costs, and profits are consolidated in BYD's financial statements. However, approximately 90% of its gross profit originates from the automotive sector.
For Tesla, 75% of its cumulative revenue in the first three quarters stemmed from automotive sales, while other segments contributed 2% from vehicle leasing, 3% from automotive finance, 10% from energy storage, and 10% from services and other revenues. The gross profit from automotive-related businesses accounts for 85%.
This indicates that the primary sources of revenue and profit for both companies are their automotive segments. Elon Musk's personal ventures like SpaceX, Starship, and humanoid robotics are not included in Tesla's valuation, which positions it as just another automaker alongside BYD, NIO, and Li Auto.
From 2021 to 2023. Tesla's revenue grew from 343.1 billion RMB to 685.1 billion RMB, doubling; its net profit increased from 35.1 billion RMB to 106.2 billion RMB, growing 1.8 times.
During the same period, BYD's revenue surged from 216.1 billion RMB to 602.3 billion RMB, doubling, while net profit jumped from 3.045 billion RMB to 30 billion RMB, an 8.8-fold increase.
Whether in revenue or net profit, BYD's growth rate far exceeds Tesla's, meaning that while Tesla has been making slow but steady progress, BYD has been accelerating its growth significantly.
However, this rapid growth is not reflected in their market value ratios. Tesla's market value remains near the trillion-dollar mark, and as of the end of October, BYD's market value accounted for only 14% of Tesla's. There is still a gap equivalent to five times BYD's market value between the two companies.
Revenue and Profit May Not Represent Everything
Revenue and profit figures may not tell the whole story. After all, Musk is nicknamed "Iron Man," while BYD's leader is referred to as "the boatman," representing "American-style high-tech" versus "Chinese-style low-end manufacturing." Is this the main reason for the vast discrepancy in market value?
Tesla Is High-Tech, But BYD Is Not Low-End
To assess whether a company is high-tech or low-end manufacturing, the most quantifiable metrics are R&D personnel and expenditures.
In the past three years, Tesla's R&D expenditures in 2021. 2022. and 2023 were approximately 16.53 billion RMB, 21.42 billion RMB, and 28.11 billion RMB, totaling 66 billion RMB, with an average of 4.2% of revenue spent on R&D.
As BYD's revenue and profit have increased, so has its R&D investment. From 2021 to 2023. BYD's R&D expenses were 7.99 billion RMB, 18.65 billion RMB, and 39.57 billion RMB, totaling 66.22 billion RMB, comparable to Tesla's, but with a steeper growth rate. In 2022 and 2023. its R&D spending nearly doubled. The average proportion of R&D spending relative to revenue over the three years was 4.9%, exceeding that of Tesla.
The highest proportion of R&D expenditure is on salaries. In China, the cost of hiring an R&D staff member is one-third to half lower than in the U.S. Considering purchasing power, BYD's R&D investments exceed Tesla's by a significant margin. Tesla has not disclosed the number of its R&D staff, but it can be estimated that Tesla's R&D personnel count is certainly lower than BYD's.
In 2021. BYD had 40.382 R&D personnel, increasing to 69.697 in 2022. a 72% rise, and reaching 102.844 in 2023. a 47% increase, making it one of the few companies in China with over 100.000 R&D personnel. Another well-known company in China, Huawei, had 114.000 R&D personnel by the end of 2023.
In 2023. among the 33.000 new R&D personnel added by BYD, 997 held doctoral degrees, a 168% increase, while the number of master's degree holders grew by 15.879. a 202% rise. As the total number of R&D personnel grew, the increase in highly educated talent was even more significant.
Recently, BYD's PR manager, Li Yunfei, revealed that the company has invested over 150 billion RMB in R&D cumulatively, establishing a solid patent moat through continuous investment.
As of August this year, data from the National Intellectual Property Administration shows that since records began in 2000. BYD has applied for 16.000 invention patents and has been granted 26.700 patents, including nearly 9.000 invention patents, nearly 15.000 utility model patents, and nearly 3.000 design patents.
BYD's innovation is reflected in its four major technology platforms: DM hybrid, Easy Four independent multi-motor drive, Evo3.0 pure electric architecture, and cloud suspension
