For most of the last decade, the case for Tesla rested on a single, unexamined assumption: that it would always build electric cars more profitably than anyone else. That assumption is now empirically false. The full-year 2025 numbers did not merely narrow the gap between the two largest electric-vehicle manufacturers in the world — they inverted it. BYD now sells more battery-electric vehicles than Tesla, and it builds each one at a higher gross margin. The margin war is over. Tesla did not win it.
By Ruslan Averin.
I have tracked this convergence for three years, and I want to be precise about what changed, because the consensus framing still treats Tesla's profitability lead as a structural feature of the business rather than a temporary artifact of timing. It was the latter. What follows is Ruslan Averin's equity analysis, not the narrative.
The Numbers That Ended the Debate
The decisive figure is deliveries. In full-year 2025, BYD recorded 2,256,714 battery-electric vehicle sales, up 27.86% year on year. Tesla delivered 1,636,129 vehicles over the same period, down 8.56% year on year. That is roughly 600,000 more BEVs from BYD — approximately 38% more — and it marks the first calendar year in which BYD has overtaken Tesla on pure battery-electric volume. This is not a rounding-error lead that reverses next quarter. It is a structural shift in EV market share 2025 that compounds.
The quarterly cadence confirms the trend rather than contradicting it. Tesla's Q4 2025 deliveries came in at 418,227, down 15.61% year on year — an acceleration of the decline, not a stabilization. BYD's Q4 2025 passenger BEV figure was a record 650,811 units, up 9.30% year on year. One company is setting volume records into the seasonal peak; the other is shrinking into it. When a market leader loses share while the market itself grows, the question is no longer whether the moat is eroding. It is how much of the valuation premium survives the recognition that it already has.
The reflexive defense — that Tesla trades volume for margin, sacrificing units to protect profitability — is exactly the argument the data dismantles. Tesla's automotive gross margin has compressed from 26.5% in 2021 to 14.6% in 2024 and 13.6% in the most recent quarter. BYD's automotive gross margin moved in the opposite direction over the same window: from 12.5% in 2021 to 14.7% in 2024 to 22.3% recently. BYD now earns a higher gross margin on each vehicle than Tesla does, while also selling more of them. There is no margin-for-volume trade-off to point to. Both legs of the historical bull case broke simultaneously.
How BYD Won: Vertical Integration as a Moat
The mechanism behind this reversal is the least glamorous explanation available, which is precisely why the market underweighted it: vertical integration. BYD is not primarily a car company that learned to make batteries. It is a battery and semiconductor company that learned to make cars, and it owns the cost curve from the cell upward.
The Blade battery is the clearest expression of this. BYD designs and manufactures its own lithium-iron-phosphate cells, packages them in a structural pack that doubles as part of the chassis, and captures the margin that a conventional automaker hands to an external cell supplier such as CATL or Panasonic. It fabricates its own power semiconductors through its IGBT and silicon-carbide operations — the chips that determine how efficiently a vehicle converts stored energy into motion — rather than queuing behind every other manufacturer for third-party supply. It does in-house what Tesla outsources at the margin and what legacy automakers outsource almost entirely.
Vertical integration is frequently dismissed as a cost story, and it is one. But its more important property is that it is a moat the income statement only reveals after the fact. When input costs fall, a vertically integrated manufacturer captures the saving at every stage of the chain rather than negotiating for a share of it. That is the engine behind BYD's gross margin climbing to 22.3% while volume expanded — operating leverage and supply-chain ownership compounding in the same direction. In my analysis, this is the part of the BYD story that screens poorly and reads well: it does not produce a single dramatic quarter, it produces a slow, durable widening of the spread between cost and price that the market consistently discovers late.
This is also why I treat BYD as the more interesting member of the cohort of Chinese EV makers rather than a representative one. The others compete on price and design. BYD competes on the structure of its own cost base, which is a far harder thing for a rival to replicate, because it requires owning the upstream rather than merely sourcing from it.
Tesla's Margin Decline 2026 in Context
It is important to be fair to Tesla, because the margin decline 2026 narrative is easy to caricature. Tesla built the modern EV category. Its margin advantage in 2021 was real, and it was earned through manufacturing innovation that the entire industry subsequently copied. The 26.5% automotive gross margin of that year was not an accident; it reflected a genuine cost and software lead at a moment when competitors had no credible electric product at all.
The problem is that the lead was a function of timing, and timing decays. As BYD and the broader field of Chinese EV makers scaled, the pricing umbrella Tesla had operated under collapsed. The mechanical evidence is in the cash flow: Tesla's Q1 2025 automotive gross profit fell 39.7% year on year to $2.27 billion. A near-40% decline in the profit generated by the core business is not a soft patch. It is the income statement registering the end of pricing power in the segment that justified the company's valuation.
The 13.6% automotive gross margin of the recent quarter places Tesla almost exactly where mid-tier legacy automakers sit, and below BYD. The bull case has migrated, in response, away from cars entirely — toward autonomy, robotaxis, energy storage, and humanoid robotics. That migration is itself the tell. When the argument for owning an automaker stops being about the automotive business, the market is being asked to underwrite optionality rather than vehicle deliveries. Sometimes that optionality is real. But it should be priced as optionality, with the wide distribution of outcomes that the word implies, not smuggled into the valuation as though the car business still carried it.
Why the Market Still Misprices Both
Here is the asymmetry that defines the trade. The market continues to value Tesla as a technology platform and BYD as a car manufacturer, even though the operating data now points the other way on the one metric — gross margin on vehicles — where the comparison is cleanest.
Tesla carries a market capitalization and a valuation multiple consistent with a software or artificial-intelligence business: a forward earnings multiple in the high tens, sometimes higher, that can only be justified by businesses Tesla has not yet proven at scale. BYD trades on a valuation multiple appropriate to an automaker — a high-single-digit to low-teens earnings multiple — despite leading on both BEV volume and automotive gross margin, and despite a vertical-integration structure that no Western automaker can match. The same gross margin profile is being capitalized at wildly different rates depending on which logo sits above it.
A persistent valuation gap of this kind is only justified if Tesla's non-automotive optionality is both large and probable, and if BYD's growth is about to stall. I see little in the deliveries data to support the second condition, and the first remains, by definition, unproven. That does not make Tesla a short — optionality with a long runway can stay richly priced for years, and I have no interest in standing in front of a narrative with a deep balance sheet behind it. In Ruslan Averin's view, it makes the relative valuation the part of the structure that is hard to defend on the numbers as they actually stand.
BYD Stock Analysis: What the Valuation Implies
A disciplined BYD stock analysis starts from what the price is currently asking you to believe. At an automaker's multiple, BYD's valuation implies modest forward growth and stable-to-declining margins — the default expectation the market applies to a car company. Yet the 2025 data shows the opposite vector: volume up 27.86%, automotive gross margin expanded to 22.3%, and a record fourth quarter. The implied forecast embedded in the multiple is contradicted by the realized trajectory of the business.
That is the entire setup. You do not need BYD to keep growing at 28% to make the arithmetic work. You need it to grow modestly and hold a margin that is already above Tesla's, against a price that assumes neither. When realized fundamentals run ahead of an undemanding multiple, the re-rating mechanism is a re-rating of the multiple itself, not just earnings growth — the market eventually pays a higher price for the same stream of profits once it concedes the quality of that stream. Ruslan Averin's view on this is that the larger source of return over a multi-year horizon is the closing of the perception gap between "Chinese car company" and "vertically integrated manufacturer with structural cost advantage," not the next quarter of unit growth.
The risks are real and I hold them in view: policy and tariff exposure in Western markets, the governance discount that attaches to Chinese listings, and the possibility that domestic price competition compresses the very margin that anchors the thesis. These are reasons to size the position with discipline. They are not reasons to mistake the current multiple for a considered verdict on the business. The market has not yet repriced what the 2025 data established; it has merely noted it.
How I Position Around the EV Sector
Ruslan Averin's framework for electric vehicle investment 2026 follows from everything above. I separate the vehicle business — where the margin war has already been decided — from the optionality businesses, where the outcome is genuinely unknown, and I refuse to pay automotive prices for the former while paying technology prices for the latter on the basis of the logo alone.
Concretely, I weight the manufacturer that owns its cost curve over the one that has lost its pricing power, while sizing for the policy and governance risks that any position in the Chinese EV makers cohort carries. I treat Tesla's autonomy and robotics optionality as exactly that — a separately priced lottery on outcomes I cannot underwrite, not a reason to extend an automotive valuation that the deliveries data no longer supports. This is the same posture I bring to capital allocation generally: buy the realized advantage at a price that assumes it away, and let the closing of the perception gap do the work.
The deeper lesson sits beyond the two tickers. The EV sector has matured from a story about who can build an electric car into a question of who can build one profitably at scale — and that is a far less forgiving competition, won on supply-chain ownership rather than narrative. It rewards the same boring, durable advantages that win in any emerging market industrialization: integration, cost discipline, and the patience to let operating leverage compound. The margin war is settled. The mispricing of its outcome is not, and that gap between settled fact and unrepriced valuation is, in the end, the trade.