Where are the investment opportunities in new energy electric vehicles? Companies that control the supply chain are the true winners.

In recent years, the electric vehicle industry has been like the smartphone industry back in the day—every technological breakthrough can trigger a surge in the capital markets. As global decarbonization becomes a consensus, countries are setting deadlines to ban the sale of fuel-powered vehicles. The electric vehicle market is currently in a golden era of rapid expansion, and this industry transformation will continue for decades.

However, behind the market prosperity, a fierce淘汰賽 (淘汰賽) is quietly unfolding. According to industry analysis, new energy vehicles have shifted from being in short supply to oversupply, and competition will intensify over the next 3 to 5 years. In this reshuffle, only companies that掌握完整供應鏈、成本控制能力強的企業 (possess complete supply chain control and strong cost management capabilities) will survive.

Current Situation of Leading Electric Vehicle Companies: Sales vs. Profitability Dilemma

The current electric vehicle market presents an interesting phenomenon—the sales leader is not necessarily the most profitable.

Tesla, leveraging its first-mover advantage, holds 21% of the global electric vehicle market share, ranking first in the industry. The company employs highly automated production, with personnel costs far lower than competitors, and a net profit margin of about 15%, far exceeding BYD’s 3.9%. However, in terms of sales growth, Tesla’s recent growth of approximately 50% has been clearly surpassed by emerging competitors.

BYD, on the other hand, has taken a different path. This company, which started with batteries, has a more complete industry chain. In the first quarter of 2023, its sales increased by over 100%, making it the second-largest global electric vehicle manufacturer and the largest in China. Although its net profit margin is not as high as Tesla’s, its gross profit margin is around 20%. With Buffett’s backing and investment, its long-term outlook remains optimistic. BYD is gradually expanding into overseas markets, and its future prospects still hold considerable imagination.

The Three Major New Car-Making Forces: Who Can Turn Losses into Profits?

Founded between 2014 and 2015, Li Auto, NIO, and Xpeng are known as the new forces in electric vehicle manufacturing, each backed by internet giants Meituan, Tencent, and Alibaba, respectively.

Li Auto is the only company that has successfully turned losses into profits, focusing on the 350,000 RMB price range. In contrast, NIO targets the high-end market above 400,000 RMB. Although its growth potential is limited by a high base, Tencent’s background gives it an advantage in building smart car platforms. Xpeng adopts a low-price strategy to capture market share, targeting the sub-200,000 RMB segment. However, this path is particularly challenging—if low prices still cannot gain market share, long-term losses will be unsustainable.

Tesla vs. BYD: Who Will Dominate?

The comparison between these two companies best reflects the current changes in the market landscape. Although Tesla’s overall market share remains high, its performance in China is increasingly weak, and it is expected that North American market share will also decline significantly by 2025. The low-price competition from emerging brands is eroding its share.

In contrast, BYD has three major advantages: first, its complete supply chain control allows for greater cost optimization; second, the Chinese market still has high-speed growth potential; third, the synergistic effects from upstream industries like automotive electronics are gradually emerging. If BYD can establish a foothold in overseas markets within the next 3 to 5 years, its long-term competitiveness should not be underestimated.

The True Test of Industry Growth

The core challenge facing the electric vehicle market is not demand but the paradox of raw material costs and selling prices. As supply increases, upstream raw material suppliers raise prices, but end consumers cannot accept price hikes. Under this dilemma, only two types of companies can thrive:

1. Supply chain integrators: with high integration and strong cost control, able to maintain competitiveness even when marginal profits are squeezed.

2. Well-funded backers: supported by parent groups, able to endure losses and wait for market consolidation.

Additionally, smart vehicle platforms will become a key to victory. Under the premise that autonomous driving is limited by regulations, the integration with other smart devices—including mobile phone linkage, charging station automation, and automatic parking systems—will determine user experience and long-term stickiness.

Why Invest in the Electric Vehicle Industry Now?

The electric vehicle industry meets two key elements of Buffett’s “Snowball Theory”: enough moisture (sustained market demand) and a long enough slope (decades of growth cycle).

Unlike the saturated mobile phone and computer industries, the electric vehicle market is still in its early expansion stage. Government policy support, increased consumer environmental awareness, and energy transition trends ensure the industry’s growth momentum over the next ten or even several decades.

Investors can not only accumulate wealth through industry expansion but also witness a profound industry revolution.

Common Investment Questions

Will charging infrastructure become a bottleneck?

Currently, yes. Especially in urban apartments and large buildings, the density of charging stations is far below that of gas stations, which is a significant factor limiting purchase willingness. However, with increased investment from governments and private sectors, infrastructure construction is accelerating.

Will oil price fluctuations affect electric vehicle development?

Hardly. During the pandemic, oil prices even turned negative, coinciding with a period of explosive growth in electric vehicles. Decarbonization is a hard goal and long-term commitment of governments worldwide, unrelated to short-term oil price fluctuations. The growth of electric vehicles is an inevitable trend, not just a cyclical economic phenomenon.