Chinese automaker BYD (BYDDF) (BYDDY) is currently competing with the U.S. giant Tesla (TSLA) for the title of the top EV seller worldwide. While BYD also offers hybrids, unlike Tesla, the Chinese company has been growing sales rapidly and maintaining strong margins, thanks to its vertical business model. On the other hand, Tesla has seen a decline in annual EV sales, and much of its bull thesis today revolves around autonomous driving. While I’m bullish on both for these different reasons, considering the more de-risked valuations, I believe that BYD is more likely to outperform Tesla in 2025 rather than the other way around.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
Using TipRanks’ Stock Comparison Tool, we can compare these two automakers across various parameters, as seen below.
BYD Has Emerged As the Largest Global EV Maker
A big part of my bullishness for BYD stock comes from the fact that the company is currently the leader in global EV sales. BYD sold 4.27 million new energy vehicles (NEVs) in 2024, which includes both plug-in hybrids and battery electric vehicles, with 1.7 million of those being fully electric. This was a 41.26% increase from 2023.
With high subsidies from the Chinese government and tax breaks, BYD has managed to grow sales by almost 18% year-over-year in the last twelve months while also increasing its sales guidance for Fiscal 2024. Given this, the stock is trading 22% upwards over the last twelve months.
Clearly, BYD’s strategy throughout 2024 has been to prioritize market share over margin gains, which seems decent at best. The company’s gross margin currently stands at 21.9%, albeit higher than Tesla’s at 19.8%. As BYD has an advantage in lower battery prices as it has its own production and other components, it is an automaker today with impressive vertical integration, which sustains lower costs and better margins.
BYD’s Prospects in 2025: What to Expect
The main challenge for BYD in 2025 is that it may have a hard time replicating the success it saw in 2024, especially since a big part of this was driven (no pun intended) by the Chinese government’s EV subsidies (worth 20,000 yuan).
On top of that, rising international tariffs could create additional limitations for BYD. Governments are starting to question whether Chinese manufacturers may have an unfair advantage, thanks to domestic subsidies that allow them to sell at lower prices. In the European Union, for instance, where BYD operates, tariffs were raised to over 35% starting in October 2024.
To offset some of these pressures, BYD has reportedly asked its suppliers to cut prices by 10%. If they can pull this off, it could help the company stay competitive and stabilize its margins. If that happens, it could be a positive sign for 2025, and in my view, it could push the stock higher.
On the valuation side, BYD is currently trading at ~17x its forward earnings, which seems suitable for a leading EV manufacturer (especially when you compare it to Tesla, which I’ll discuss later). However, since BYD is based in China and operates under the influence of the Chinese government, the stock is naturally trading at a discount. This is understandable, as many investors still view China as an “uninvestable” market.
Is BYDDF Stock a Good Buy, According to Analysts?
That said, Wall Street’s consensus on BYD is pretty encouraging. Out of the eight analysts covering the stock, seven are bullish, and only one has a Hold recommendation. The average BYDDF stock price target is $45.91, which suggests nearly a 44% upside potential from its latest price.
See more BYDDF analyst ratings
Tesla’s Real Value Goes Beyond EV Sales
While I’m bullish on Tesla stock, it’s clear that the company’s value goes beyond just EV sales. As a global leader in electric vehicles, Tesla’s investment thesis today rests not only on its EV sales but also on its ability to develop Full-Self Driving (FSD) vehicles and its increasing focus on AI integration.
Interestingly, Tesla sold fewer cars in 2024 than in 2023, yet its stock price has jumped 79% compared to the same period last year. For context, Tesla delivered 1.79 million vehicles in the full year 2024, which is a slight drop from the 1.81 million units delivered in 2023, marking its first-ever annual sales decline.
Despite the dip in sales, Tesla’s strategy is now heavily focused on its FSD autonomous vehicles. In September 2024, the company hosted its much-anticipated Cybercab Day event, though it left some important questions unanswered, especially regarding the execution and funding of its autonomous vehicle plans. That said, Tesla bulls, like Wedbush’s Dan Ives, still believe that Tesla’s market cap could reach $2 trillion by 2025, with autonomous driving and AI potentially contributing $1 trillion of that valuation.
Realistically, Tesla still relies heavily on its EV sales, and that’s likely to continue for the foreseeable future. Around 80% of Tesla’s revenue comes from its six EV models. While analysts may be right about Tesla’s AI and autonomous driving potential being worth $1 trillion, the tricky question remains whether Tesla’s EV sales alone should be valued at another trillion.
Tesla’s Prospects in 2025: What to Expect
From an EV sales perspective, Tesla’s outlook for 2025 doesn’t seem particularly convincing, especially with the stock trading at a forward P/E of 160x – almost eight times higher than BYD’s. That said, what will likely move Tesla’s stock this year are the developments stemming from its robotaxi plans.
I believe the market is starting to recognize that Tesla is no longer just a car manufacturer with EV margins around 20%, though. Instead, it’s evolving into a software-as-a-service (SaaS) business with the potential to significantly boost its margins, much like software companies that typically enjoy gross margins above 50%.
With Donald Trump back in the Oval Office and CEO Elon Musk now being part of the government, Tesla could have a major advantage in accelerating its path toward FSD, benefiting from lighter regulatory hurdles.
Is TSLA Stock a Good Buy, According to Analysts?
Wall Street’s consensus, however, doesn’t seem to reflect the optimism regarding Tesla’s journey into AI at current valuations. In fact, being bullish on Tesla is somewhat contrarian. Of the 34 analysts covering the stock, only 13 are bullish, 12 are neutral, and nine are bearish. The average TSLA stock price target is $322.56, which suggests a 20% downside risk.
Conclusion
Both Tesla and BYD are well positioned for gains in 2025, in my opinion, albeit in different areas.
Tesla’s main thesis connects to AI advancements, which I’m bullish on this year as ties between Musk and Trump’s administration are expected to accelerate positive news about FSD vehicles. On the other hand, BYD is expected to continue to break sales records with Chinese government subsidies prevailing and ongoing benefits from its vertical cost structure.
As a result, although both stocks deserve a Buy but also have clear vulnerabilities, Tesla’s stretched valuation versus BYD makes me lean toward the Chinese maker as more likely to outperform for now.
