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China is home to some of the world’s biggest tech companies, many of which offer services similar to U.S. tech giants. For instance, Baidu (BIDU) is termed as the “Chinese Google,” while Weibo (WB) is the Chinese version of X (formerly Twitter) - which is banned in the communist country, for obvious reasons. Alibaba (BABA) is dubbed the “Amazon (AMZN) of China,” while iQiyi (IQ) is seen as China’s answer to Netflix (NFLX).
In the electric vehicle (EV) space, Tesla (TSLA) is the gold standard – not only for U.S.-based companies, but globally. During the heyday of the special purpose acquisition company (SPAC) boom between 2020 and 2021, it was normal for analysts to benchmark newly listed electric vehicle (EV) companies against Tesla, and startups like Lucid Motors (LCID) also rather generously compared their evolution to that of Tesla.
Cut to 2024, and EV startups in the U.S. are struggling—or worse, have gone out of business. However, Chinese companies are giving Tesla a tough fight not only in the domestic market, but internationally.
Musk Sees Chinese Companies as a Potent Threat
No wonder, then, that Tesla CEO Elon Musk – who once scoffed at the possibility of BYD (BYDDY) becoming its competitor – has been all praise for Chinese EV companies. During Tesla’s Q4 2023 earnings call earlier this year, Musk said “Frankly, I think if there are no trade barriers established, they (Chinese car companies) will pretty much demolish most other companies in the world.” He described them as the “most competitive globally" - something every auto executive would attest to (perhaps not in public, but at least privately).
The billionaire echoed similar views during Tesla’s Q4 2022 earnings call last year when he said that Chinese car companies “work the hardest and they work the smartest.” He added, "And so if I would have guessed, there are probably some companies out of China as the most likely to be second to Tesla.”
Which Chinese EV Company Can Be the Next Tesla?
China is the home to multiple EV companies – both established and in the startup space. BYD is already the world’s biggest seller of new energy vehicles (NEVs), even as over 60% of its shipments in Q3 were plug-in hybrid vehicles (PHEVs).
That said, the company’s overall shipments are over twice that of Tesla, and in Q3 2024 it delivered over 1 million cars for the first time. It has surpassed Tesla in terms of total revenues, and while Tesla still retains the title of the world’s largest seller of battery electric vehicles (BEVs), BYD is fast catching up. BYD, incidentally, took the crown in Q4 2023, but Tesla soon reclaimed it.
NIO (NIO) was once touted as the “Tesla of China.” However, the company failed to meet high expectations. Also, its initial business strategy of using a third party to manufacture its cars was at odds with Tesla, which is among the most vertically integrated automakers globally.
Several other Chinese companies aspire to become the “next Tesla.” For instance, earlier this year, Chinese EV company Zeekr (ZK) said that its batteries can go from a 10% to an 80% charge in only 10.5 minutes, which is faster than Tesla.
Tesla is Not Merely an EV Company
When we talk about Tesla, it's worth pointing out that it's not merely an EV maker, or else markets wouldn’t be valuing it at over a trillion dollars - which is higher than the combined market cap of all leading automakers put together. Tesla is a play on other businesses, most importantly the autonomous driving and artificial intelligence (AI) endeavors.
On multiple occasions, Musk has stressed that the company’s valuation is linked to its progress on autonomy. Over the long term though, the mercurial CEO believes that AI will add a lot of value for shareholders.
At the shareholder meeting earlier this month, Musk said that the company’s Optimus humanoid could add $25 trillion to Tesla’s market cap. To put it simply, Tesla is a play on EVs, autonomous driving, AI - and above all, Musk, who is quite ambitious and visionary while being controversial at the same time.
Can Xpeng Motors Be the Next Tesla?
I believe Xpeng Motors (XPEV) is one Chinese company that comes quite close to Tesla in strategy as well as ambitions. While the company’s EV deliveries have been below par for most months over the last two years, things are now looking back on track, with deliveries rising to a record high last month.
In terms of autonomous driving, Xpeng's driver-assist technology is regarded as among the best – if not the best – in China. At its AI Day earlier this month, Xpeng unveiled its Turing AI Intelligent Driving System, which it said paves “the way for L4 autonomous driving.”
No wonder that German auto giant Volkswagen (VWAGY) invested in the company and said the two will jointly produce cars for the Chinese market. In the U.S., Volkswagen has invested in Rivian (RIVN), which is seen as a credible challenger to Tesla.
Xpeng is Also an AI Play
XPEV stock is also an AI play, and at the AI Day, it unveiled the advanced humanoid AI Robot Iron which is powered by its Turing AI chip. Xpeng also has a flying car subsidiary named Xpeng Aeroht, which will open pre-orders in December. Finally, like Musk, Xpeng Motors’ CEO He Xiaopeng is quite ambitious and visionary, even as arguably at times his forecasts have turned out to be a lot too optimistic.
All said, if Xpeng Motors really aspires to be the next Tesla, the company has to first reach significant scale in its EV operations. While green shoots are emerging after strong deliveries over the last couple of months, Xpeng has to reach a critical mass in terms of deliveries before it is put in the same league as Tesla.
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