Chinese EV (electric vehicle) maker BYD (002594:SHE) overtook Tesla (TSLA:NASDAQ) to become the world’s largest producer in 2022 after global production surpassed 10 million for the first time according to industry publication EV Volumes.

While Tesla remains the market leader in terms of annual revenues, analysts’ projections see BYD catching up fast.

Recent third quarter results suggest Tesla is driving with the brakes on while BYD is cruising into top gear.

BYD pleased investors on 17 October after saying it expected to deliver third quarter profits of between $1.3 billion and $1.6 billion compared with analysts’ expectations of less than $800 million.

The company was scheduled to release it earnings on 31 October but went early when it became clear its projections were way out of whack with market forecasts.

Part of the reason for the big earnings beat is that the company sold more cars with a richer mix of features than the consensus was expecting, explains Citi analyst Jeff Chung.

Warren Buffett’s Berkshire Hathaway (BRK.B:NYSE) purchased a 21% stake in BYD in 2008, forking out $230 million.

Berkshire’s investment was worth around $7 billion at its peak in 2022. According to regulatory filings Berkshire has been selling down its stake this year, reducing its holding to just under 10%. 

Meanwhile Tesla disappointed investors after missing third quarter Wall Street estimates on 18 October, delivering EPS (earnings per share) of $0.66 compared with $0.73 pencilled in by analysts.

Price cuts reduced operating margins from 17.2% a year ago to just 7.6%.

Tesla has been aggressively dropping prices for some models over the last few months as it looks to drive volumes, gain market share, and make its vehicles more affordable.

Dampening growth expectations, Elon Musk said high interest rates were putting off buyers despite substantial price cuts. This means production ramp-up at its Mexican factory will be put on hold in the face of economic headwinds.

If Tesla wants to make it cars more affordable, BYD is already ahead of the game. In China for example, BYD’s entry level EV the Seagull retails at $11,000 while Tesla recently unveiled a Model 3 sedan at $36,000.

BYD has a crucial advantage when it comes to cost because its original business was making batteries, which it still makes inhouse, while Tesla relies on third parties. The battery is one of the most expensive component parts of an EV.

Investment bank UBS estimates this translates into a 15% cost advantage for BYD.

The Chinese firm is building significant brand awareness and last year became the bestselling brand in China ahead of Volkswagen (VOW:ETR).

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