China-based BYD threatens to overtake Tesla as world’s largest electric car maker

Today, let’s take a look at four more forecasts for this year related to the dawn of Tesla-BYD competition, the outlook for EV startups and battery prices, and the impact of the U.S. Inflation Reduction Act. Again, these are excerpts from the full report for BNEF and Bloomberg end clients which can be found here.

Can BYD surpass Tesla in pure electric vehicle sales?

Shorting Tesla has historically tended to be a bad bet, but BNEF’s analyst team thinks 2023 could end with a new EV sales leader. BYD has been rapidly expanding its model lineup, geographic footprint and manufacturing capabilities over the past two years. If you include the company’s plug-in hybrid vehicles, it will already surpass Tesla by 2022, and its sales of pure electric vehicles soared from 321,000 in 2021 to about 911,000 last year.

BNEF still expects Tesla’s sales to grow 30% to 40% by 2023, as its new factories near Berlin and in Austin, Texas, continue to ramp up. But the macroeconomic environment is rapidly shifting, with rising interest rates, falling home prices and a sluggish stock market all starting to weigh heavily on consumer buying decisions. Elon Musk’s Twitter antics have also turned off some potential buyers as competition heats up.

Tesla’s Model Y will remain the world’s best-selling electric vehicle through 2023, and will likely break into the top five in 2022 before breaking into the top three in any category. Tesla’s Supercharger network remains a major differentiator, especially in North America, where public charging is underdeveloped.

The race will be played until the last minute, and a lot will depend on pricing strategy. With big price cuts just underway in the U.S. and Europe, and already playing out in China, Tesla has shown a willingness to wage a price war to keep sales growing. Tesla has leeway here and will likely hold on to the lead for most of the year, but BYD could beat its rivals in the final months. BYD’s sales are still largely concentrated in China, so its success will largely depend on how the country lifts its Covid-zero policy. Both will be well ahead of legacy automakers, with Volkswagen in third.

Battery prices remain high, averaging $152 per kWh

In 2022, the volume-weighted average price of lithium-ion battery packs in various industries will average $151/kWh, an increase of 7%, and BNEF recorded an increase for the first time. BNEF expects the average price of battery packs to rise slightly this year to $152 per kWh.

Lithium prices will remain high, but should remain below earlier highs and pave the way for battery prices to fall again in 2024.

U.S. Inflation Reduction Act Puts U.S. in Electric Car and Battery Manufacturing Game

The big surprise for 2022 is the Lower Inflation Act and its provisions to help boost EV adoption, onshore EV manufacturing and battery supply chains. While some details are still under wraps, automakers and battery makers have responded. After the law passed in August, BNEF tracked nearly $28 billion in new investment announcements related to electric vehicles and batteries in North America.

China’s lead here is huge, but the shift is still in its early stages. With only 2% of cars on the world’s roads today being electric, EVs have a lot more to play as countries and regions look to build the next technology and manufacturing clusters. Importantly, electric vehicles should become a less partisan issue this year and beyond, with most of America’s investment going to red states.

We expect over $80 billion to be invested in the North American battery supply chain by 2023. These decisions are complex and often evaluated over many years, so it’s not appropriate to place causality solely on the IRA. Nonetheless, incentives are turning the tide, and we will gradually get a clearer picture of how other regions will respond. Industrial policy is back in fashion, with electric vehicles and batteries in focus.

A wave of bankruptcies and consolidation

There are too many automakers, and 2023 will make that painfully clear.

The number of automakers has been rising steadily over the past decade, as cheap money and a window of opportunity in electrification combined to attract new entrants. A slowdown in EV sales growth will trigger a reckoning, as many realize they either don’t have the capital to scale, or the segments they’re targeting are already crowded (e.g., premium), or consumers simply aren’t interested in an uncertain economy. Period, a big step forward for a relatively unknown brand.

The window of opportunity for new entrants is closed, and the number of automakers will decline this year. Other areas of the EV value chain should fare better, but may also see a shrinking ranks.

First published date: Jan 14, 2023 at 08:52 AM CST