BYD (ticker: 1211.Hong Kong) announced on Tuesday that its third-quarter profits are expected to range between $1.3 billion and $1.6 billion, exceeding Wall Street's expectations of less than $800 million.
A Pleasant Surprise for Investors
In response to the news, BYD shares surged by 6.9% in overseas trading. On the other hand, Tesla (TSLA) stock remained relatively unaffected, with a slight decrease of 0.6% in premarket trading. Meanwhile, S&P 500 and Nasdaq Composite futures experienced declines of 0.4% and 0.6%, respectively.
Revenue-Mix Upside
According to Citi analyst Jeff Chung, this outcome highlights a failure on the part of the consensus to accurately predict BYD's revenue mix. The company managed to sell more cars than anticipated, with a higher proportion featuring premium features.
Implications for Tesla
This positive development for BYD bodes well for Tesla as well. In recent months, there has been an intense price war among electric vehicle (EV) manufacturers in China as they strive to secure market share. The fact that Chinese consumers are opting for higher-end cars suggests they are using these price cuts to upgrade, potentially resulting in better-than-expected profit margins.
BYD and Tesla: Leading the EV Market
Maintaining market shares has been challenging for brands outside of Tesla and BYD. BYD's sales of all-battery electric vehicles have increased by nearly 80% year to date, predominantly in China. Similarly, Tesla's sales from its Shanghai plant have grown by approximately 45% compared to the previous year. Overall, the Chinese BEV market has seen a growth of around 22%. Both BYD and Tesla have successfully gained market share.
Dominance through Scale
Both Tesla and BYD have leveraged their scale to achieve consistent profits. Tesla, as the largest EV maker globally, has delivered approximately 1.7 million battery electric vehicles in the past 12 months. BYD, the leading EV manufacturer in China, has delivered around 1.3 million vehicles during the same period.
Tesla's Upcoming Earnings
Tesla is set to report its third-quarter earnings on Wednesday evening. Analysts are anticipating earnings per share of approximately 70 cents from sales just under $24 billion. However, it is expected that automotive gross profit margins will fall below 18%, representing a decrease of 7-8 percentage points compared to the previous year. These price cuts by Tesla are the main contributing factor.
Conclusion
Investors are hopeful that these cuts in prices and profit margins will reach their bottom limit. The market will be closely monitoring Tesla's financial results to gauge the company's performance in a challenging economic environment.
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