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How is the outlook for the electric automobile industry which has grown more than 10 times in 6 years?
In recent years, there has been a visible increase of electric vehicles on the road. Behind this trend is the explosive development of the electric vehicle industry. In addition to giants such as Tesla and BYD, as well as new car-making forces such as Li Auto and NIO, traditional fuel vehicle giants such as BMW, Mercedes-Benz, and Audi (BBA) are unwilling to let the electric vehicle market eat up their share. If they can't beat them, they join them, and they have also introduced their own electric vehicles. On the product structure side, 10-30 billion yuan products' operating income were 401/1288/60 million yuan respectively.
The rapid development of the electric vehicle industry has also driven the stock performance of industry giants. For example, since 2020, the stock price of Tesla has increased eightfold, while that of BYD has increased 4.5 times. However, as the industry enters a period of shuffling, the stock prices of relevant companies have also started to fluctuate significantly.
We know that the automotive industry is a very large market, and in recent years, the penetration rate of electric vehicles in the entire automotive industry has been increasing, which indeed harbors many investment opportunities. In this article, we will introduce the electric vehicle industry in general. The analysis framework mainly includes:
Reasons for the rapid development of electric vehicles
Market space and growth rate of electric vehicles
Competition pattern of electric vehicles
Comparison of two electric vehicle giants
1. Reasons for the rapid development of the electric vehicle industry
The rapid development of electric vehicles in recent years has been driven by multiple factors.
The first factor is the promotion by the government and relevant policies. To reduce greenhouse gas emissions, avoid global warming, many countries have set targets for the popularization of electric vehicles. For example, legislation in Europe stipulates that the sale of petrol and diesel vehicles will be banned from 2035, accelerating the transition to the electric vehicle industry. In order to achieve these goals, the government will provide subsidies or tax exemptions to enterprises to promote the development of the electric vehicle industry. We know that in the early stages of industry development, the profitability of enterprises may be very fragile, especially for heavy asset industries such as the electric vehicle industry. Therefore, government subsidies or tax incentives are like a shot in the arm for start-up companies in the industry, which is also an important prerequisite for these companies to later grow and expand.
The second factor is the reduction of costs. For example, lithium-ion batteries are a very important part of the cost of electric vehicles. According to the US Department of Energy's estimates, the price of lithium-ion batteries has dropped from $1,355/kWh in 2008 to $153/kWh, a decrease of nearly 90%.
In addition, the more electric vehicles are produced, the more obvious the economies of scale of factory production may be, and manufacturing costs may also be lower. The lower the cost, the higher the profit margin of the enterprise, or the higher the room for price reduction, which is naturally conducive to the development of the enterprise and the industry.
The third factor is the gradual solution to range anxiety. One of the biggest disadvantages of electric vehicles relative to fuel vehicles is the need to consider the issue of battery range. When a fuel vehicle runs out of gas, there are gas stations everywhere, and it can be refueled within a few minutes. However, electric vehicles are after all a new product, and charging is not as fast as refueling. If the vehicle is driven until it is almost out of power, the owner may feel anxious. So how can this be solved? On the one hand, it relies on the increase in electric vehicle range, and with the advancement of battery technology, electric vehicle battery range has increased from a few hundred kilometers at the beginning to a maximum of over 1,000 kilometers now. On the other hand, infrastructure such as charging stations is increasing, and charging speed is also getting faster. Charging for electric vehicle owners is becoming more and more convenient, which can also alleviate range anxiety to some extent.
The fourth factor is that there are more and more electric car companies, along with the price reduction, which has also stimulated consumers. Currently, there may be hundreds or even thousands of electric car models available on the market, greatly increasing consumer choice. At the same time, with the intensification of competition, leading companies such as Tesla have already lowered their prices several times, which has also greatly stimulated car purchasing demand.
2. Market Space and Growth Rate of the Electric Car Industry
Thanks to the promotion of multiple bullish factors, the electric vehicle industry has grown at an astonishing rate in the past few years. The sales volume of electric vehicles worldwide was less than 1 million in 2016, but it has exceeded 10 million by 2022 , a 12-fold increase in sales in only 6 years, and the annual compound growth rate during this period is as high as 54%.
Especially in the two years from 2020 to 2022, electric vehicles have further increased their impact. According to data from the IEA, their share of the entire automotive market has risen from 4% in 2020 to 14%.
So what is the future market size of electric vehicles worldwide? Looking at it from the perspective of sales, according to institution predictions, the market size of electric vehicles worldwide will increase from $205.58 billion in 2022 to $1.76 trillion in 2032, with an expected annual compound growth rate of approximately 24%, becoming another trillion-dollar super track.
In terms of regional distribution, China is currently the largest market for electric vehicles in the world. The global stock of electric vehicles is about 26 million, and China accounts for half of that. Europe is close behind, with a stock of 7.8 million, accounting for about 30% of the share, while the United States ranks third with a total of 3 million electric vehicles, accounting for about 11%.
Looking at the penetration rate of electric vehicles, China is also in the lead. In 2022, China's sales of electric vehicles reached as high as 5.9 million, accounting for 29% of all car sales. Europe sold 5.9 million electric vehicles, accounting for 21% of all car sales, while US electric vehicle sales were about 1 million, accounting for only about 8% of the overall car sales.
3. Competitive landscape of the electric vehicle industry
So, in the super large market currently worth hundreds of billions of dollars, and expected to exceed trillion of dollars in the future, which companies stand out?
Based on the global sales of electric vehicles in the first half of 2023, global sales of electric vehicles reached about 6.2 million, a year-on-year increase of 49%. Among them, the Chinese electric vehicle giant BYD sold 1.26 million vehicles, accounting for 21% of the market share, while Tesla closely followed, occupying approximately 15% of the market share. Volkswagen ranked third with 7% market share.
The top ten together hold 76% of the market share, of which only BYD and Tesla are companies focused on producing electric vehicles. Other companies were originally traditional fuel vehicle companies, but under the impact of electric vehicles, they have had to launch their own electric vehicle brands.
Looking at the regional distribution of the top ten, Chinese companies occupy three of the top five and four of the top ten, while European companies occupy three of the top ten, basically keeping pace with the development of electric vehicles in various countries.
4. Comparison of the two major electric vehicle giants
In terms of market share, Tesla and BYD, the top two companies in the industry, are the most pure electric vehicle companies and their sales have far surpassed other competitors. These two companies are the biggest beneficiaries of the development of the electric vehicle industry, so how do they compare in terms of fundamentals and valuation?
In terms of revenue and profit, taking the third quarter of 2023 as an example, Tesla's revenue and profit are similar to BYD's, with Tesla being slightly higher.
In terms of profitability, Tesla's gross margin rate in the third quarter of 2023 is lower than that of BYD, but its net profit margin is slightly higher than that of BYD, and the difference between the two is not significant.
In terms of business performance growth rate, Tesla's business performance growth rate in 2022 and the third quarter of 2023 is much lower than that of BYD.
From a financial risk perspective, Tesla's asset-liability ratio is significantly lower than Byd Company Limited, and the overall financial risk is relatively smaller. Tesla's current ratio level is also significantly higher than BYD's, and its liquidity may be relatively better.
From the perspective of market cap and valuation, Tesla's market cap exceeds 800 billion USD, nearly 11 times that of Byd Company Limited, and its rolling PE ratio (market cap divided by net income with financial statements recorded in the past twelve months) is about 4 times that of BYD's.
Although Tesla's net income level is not much different from that of Byd Company Limited, its valuation exceeds that of Byd by an order of magnitude. The potential reasons behind this may include: the better liquidity of US stock market, Tesla's deeper accumulation in brand influence, AI, and intelligent driving around the globe, and Tesla's relatively smaller financial risks, etc.
In summary:
The electric car industry has developed rapidly in recent years, and there have been many investment opportunities in the capital markets.
The main factors behind the development of the electric car industry include policy promotion, cost reduction, resolution of mileage anxiety, and price reduction, etc.
The electric car industry has experienced a compound growth rate of over 50% in the past few years, and the growth rate will maintain at about 24% in the next decade. China, Europe and the USA will dominate the market.
The top ten of electric car industry occupy the majority of market share, and the top three include Byd Company Limited, Tesla, and Volkswagen.
In terms of comparing two electric car giants, Tesla is superior to Byd Company Limited in terms of profitability and financial condition, but its historical growth rate is lower than that of Byd, while its valuation exceeds Byd's by a large margin.
