Which auto stock is better? In-depth comparison and investment guide for leading new energy electric vehicle stocks

The Golden Age of the Electric Vehicle Industry

Over the past few decades, we have witnessed the PC revolution and the mobile phone boom. Now, it’s the turn of new energy electric vehicles to become the darling of the capital markets. As global environmental awareness rises, governments worldwide are setting timelines to ban the sale of fuel-powered cars, making the electric vehicle market an irreversible development trend.

This wave of industry upgrading differs from the past in that: the electric vehicle market has long-term growth potential similar to that of the early automotive industry, and is expected to maintain rapid expansion over the next few decades. Compared to saturated consumer products like smartphones and computers, electric vehicles represent a new opportunity for wealth creation. As long as investors master the complete supply chain, control costs and technology, they can share in this industry’s dividends over the next 10 to 20 years.

Leading Car Stocks Today: China and the US Duel

Currently, the new energy vehicle market is dominated by China and the US, with technological leadership and market scale being the two main advantages determining each brand’s competitiveness. Many electric vehicle companies are growth stocks, but profitability varies. Below are the three most noteworthy leading companies.

Tesla (TSLA.US): The Pioneering Legend

When it comes to industry leaders in electric vehicles, Tesla is unavoidable. The company’s business strategy is quite clever: initially building a high-end brand with supercars to enhance brand premium, then open-sourcing patents to establish industry standards, and finally turning profits through carbon credit trading and Chinese subsidies. Tesla turned profitable in 2020 and was included in the S&P 500, with its stock price soaring more than tenfold in the short term, making Elon Musk the world’s richest person.

Market Status: Tesla currently holds a 21% global market share in electric vehicles, leading the industry by a wide margin. The company employs highly automated production, resulting in low personnel costs, with a net profit margin of about 15%, far surpassing second-place BYD’s 3.9%. However, this advantage is shrinking—Q1 2023 saw Tesla’s sales growth of about 50%, well below BYD’s over 100% increase. It is expected that by 2025, Tesla’s market share outside North America will decline significantly, facing low-cost competition from emerging brands.

BYD (1211.HK): The True Leader with a Complete Supply Chain

BYD’s growth trajectory is entirely different. Founded in 1995, this company initially produced batteries for consumer electronics. After acquiring Qin Chuan Automobile in 2003, it entered the new energy sector, with a turning point in 2008 when Warren Buffett invested HKD 1.8 billion, marking a major milestone.

Market Status: BYD is currently the second-largest manufacturer globally and the top in China for electric vehicles, consistently profitable since listing. Its gross profit margin is about 20%, comparable to Tesla, but its operating net profit margin is only a quarter of Tesla’s, mainly because: first, BYD lacks US policy incentives and mainly benefits from the Chinese market; second, the company’s industry scope is broad (batteries, components, complete vehicles), resulting in high personnel costs that prevent large-scale layoffs.

Investment Highlights: BYD controls the entire supply chain from batteries to complete vehicles, with superior cost control compared to Tesla. In 2023, its sales volume growth exceeded Tesla’s by more than double, and it is steadily expanding into overseas markets. Warren Buffett recently reduced some holdings, making the stock relatively undervalued, which long-term investors can focus on.

Li Auto (LI.US): The Profitable New Car Maker

Li Auto is a new force established around 2015, backed by Meituan. Among NIO, Xpeng, and Li Auto, Li Auto is the only company that has achieved profitability. Its strategy focuses on the mid-range market around 350,000 RMB, with precise product positioning.

In contrast, NIO targets the high-end market above 400,000 RMB, supported by Tencent, and may lead in smart vehicle platforms in the future; Xpeng aims at the low-price market below 200,000 RMB. However, if the low-price strategy cannot capture market share, it risks expanding losses.

Industry Competition Intensifies: The Elimination Race Has Begun

According to Wang Chuanfu, Chairman of BYD, the new energy vehicle market has shifted from supply shortages to oversupply, and the next 3 to 5 years will see a fierce elimination race.

The core pressure of this competition comes from the upstream and downstream “cost wars”: suppliers raise prices due to increased demand, while end consumers refuse to accept higher prices, leading to a double squeeze of “inability to raise selling prices and rising raw material costs.” Only companies with complete supply chains and strong financial backing can survive. Industry leaders like BYD and Tesla, which control upstream resources, have an advantage in this wave of competition.

Meanwhile, the concept of “smart cars” has become a key to victory. Under current regulations, autonomous driving technology is limited to Level 2, but integration with smartphones, charging stations, parking systems, and other devices can greatly enhance user experience. Whoever masters the smart platform ecosystem will win the future market.

Tesla vs. BYD: Who Is More Worth Investing In?

From an overall operational perspective, BYD may have a competitive advantage over the next 3 to 5 years. The reasons are as follows:

Complete Supply Chain: BYD started with battery R&D, controlling the entire industry chain, and has far better cost control than Tesla. Although Tesla’s net profit margin is higher, it relies more heavily on upstream suppliers, with higher cost fluctuation risks.

Market Growth Momentum: In Q1 2023, BYD’s sales increased by over 100%, far surpassing Tesla’s 50%. Tesla’s global market share is gradually declining, especially in China where performance is weak.

Strategic Position: Tesla faces low-cost pressure from emerging brands and must balance maintaining profit margins with market share expansion; BYD can steadily push overseas expansion, leveraging its mature industrial advantages to compete globally.

Why Invest in Electric Vehicle Stocks Now?

The growth of the electric vehicle industry is not short-term speculation but an inevitable trend driven by global carbon reduction goals. Governments have set clear timelines to ban fuel vehicle sales, and market demand will continue to grow.

Following Buffett’s “Snowball Theory,” quality investments require “enough wet snow” (excellent companies) and “a long slope” (long-term growth space). The electric vehicle industry fully meets these two conditions—industry leaders have moats, and the market growth cycle could extend for 10 to 20 years.

Compared to the saturated markets of smartphones and computers, electric vehicles represent a new opportunity for value creation. Investing in this industry allows you to share in economic growth and witness a historic shift of an era.

What to Watch When Investing in Electric Vehicle Stocks?

Charging Infrastructure: The biggest current bottleneck limiting EV adoption is insufficient charging station density. In places like Taiwan and China, apartment and building parking lots generally lack charging facilities, which is disproportionate to the coverage of gas stations. The level of infrastructure development will directly impact industry growth speed.

Limited Impact of Oil Price Fluctuations: Many mistakenly believe that oil price swings affect EV development. In reality, during the pandemic, oil prices even turned negative, yet EV sales exploded. Environmental policies and carbon reduction are driven by regulation, not oil prices. Although many EV brands are still unprofitable, as long as shareholders with strategic intent continue to invest, the industry’s growth trend remains unchanged.

Supply Chain and Cost Control: Over the next 3 to 5 years, those who can control costs at the lowest level will dominate the market. Pay close attention to gross margin, net margin, cash flow, and relationships with upstream suppliers—these indicators will determine who survives the elimination race.

Level of Intelligence: Besides range and charging speed, in-vehicle smart systems, connectivity, and basic autonomous driving functions are also key factors attracting consumers. Companies that master the smart ecosystem will have an advantage in future competition.