Elon Musk Doesn't Have To Sell More Cars Than Other Automakers For Tesla To Win EV War, Says Analyst: 'What's Most Important...Is The Profit Share Battle'

Elon Musk‘s Tesla Inc. TSLA could retain its position as the leader in the electric vehicle (EV) market, even if it is outsold by competitors, according to Canaccord Genuity’s managing director.

What Happened: In an interview with CNBC, George Gianarikas acknowledged the possibility of Chinese automaker BYD BYDDF BYDDY outperforming Tesla in EV sales, Business Insider reported. However, Gianarikas emphasized that total sales do not necessarily equate to market dominance.

Using Apple’s trajectory in the smartphone industry as an example, Gianarikas pointed out that Tesla’s stronghold might not be in its unit sales but in its profit share. 

“Apple kind of had 100% market share because they were the first one to market with a true smartphone. Same thing for Tesla,” he said.

“Asian competition came into the smartphone market, and the same thing is happening in the EV market, and eventually, Tesla will likely be overtaken from a unit perspective.”

“What’s most important, and we think Tesla will win over time, is the profit share battle,” Gianarikas said.

“Today, Apple doesn’t have the most unit market share on smartphones, but it overwhelms the market in terms of profit share and we think ultimately, that will be what’s most important for Tesla, and we think that’ll happen.”

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A recent report projected that Tesla would deliver approximately 1.82 million vehicles in 2023, a 37% increase from the previous year. Despite recent price reductions affecting Tesla’s profit margins, Gianarikas is confident that Tesla has a recovery strategy in place, including a focus on selling Full Self-Driving (FSD) software.

“Ultimately, we think it’s through FSD software and through the vertical integration that Tesla’s the best in the world at, it will ultimately result in higher than average gross margin and profits for their EVs relative to anyone in the marketplace,” Gianarikas concluded.

Why It Matters: Tesla’s prominence in the EV market has been tested by rising competition, especially from Chinese automakers like BYD. Tesla is responding to this competition with a major overhaul of its Model Y in China, with production set to start in mid-2024.

Wedbush analyst Daniel Ives is also optimistic about Tesla’s imminent Q4 deliveries, believing that they could be a significant catalyst for the company’s stock.

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