Automotive industry one on one: profits are derived from volume. The higher the latter, the better for the former. This should be the first lesson for Tesla, the world’s most richly valued automaker that only sells the same number of cars in a year as others do in days.
Tesla Motors, the youngest and smallest publicly traded US automaker, knows this law – it’s obvious since their dire threshold is to increase annual production and sales around 16 times to 500,000 units per year by the turn of the decade. They made another step forward – co-founder and chief executive officer Elon Musk launched the Model X SUV, the second vehicle in its lineup and by 2018 it also aims to introduce Model 3, a mass-market electric car that should cost no more than $35,000. But their ambitions could be trumped by other electric car manufacturers.
For example, just hours before Tesla threw a major party in honor of the Model X’s first delivery, China’s State Council took another step towards transforming the world’s largest auto market into an environmentally friendly “Mecca” – they asked local governments to have 30 percent of fleet acquisitions pooled from “new energy vehicles” and threatened with heavy retaliation if they didn’t comply.
Do you think that is good news for Tesla? Nope, it’s great news for BYD, the Warren Buffet backed automaker and China’s largest producer of electric and plug-in hybrid cars. Its stock now sits 44 percent above the low achieved during the Chinese stock market crash and even though it’s just a mouse compared to Tesla’s “elephant” market value we can see who’s going to have the highest profits already. While Tesla has the advantage of technological superiority, BYD can invest loads into its electric cars because it makes anything from traditional cars to mobile-phone batteries.