Tesla produces its own batteries for some of its vehicle manufacturing but also utilizes outside suppliers. The relationship with BYD is somewhat complex as Tesla works to grow its EV business in China where BYD dominates the market. BYD delivered nearly 1.9 million units in 2022, most of which were in its home market. Tesla's global operation delivered just 1.3 million last year by comparison.
An end to their battery-supply relationship could have been taken as the sign of a demand slowdown for Tesla. The outright denial by both parties has investors following Cathie Wood's lead today by buying shares in Tesla.
It's important to own a generally diversified portfolio, but one should also pay attention to one's diversification within sectors. The EV sector is still in an early stage of its evolution, and it's far from clear which of today's players will wind up winners and which will be losers. One winner as far as profitability goes is Tesla. However, that doesn't make it risk-free as an investment by any means. That's why it makes sense to look at adding various other EV industry names to one's portfolio.
While Nio and Rivian could both turn out to be successful, owning Tesla stock already gives one exposure to what they offer investors. Nio does business in China and is expanding to Europe. China-based BYD (BYDDY 1.64%) and, to a lesser extent, Tesla, already dominate China's EV market. And Tesla's German plant is ramping up production quickly to help supply Europe. The Berlin factory alone reportedly now produces 4,000 vehicles each week. For perspective, Nio only expects to deliver between 31,000 and 33,000 EVs in the entire first quarter.
Rivian began its life as a public company in the consumer light truck market -- a different EV niche than Tesla. But Tesla is about to start encroaching on Rivian's turf -- it expects to begin deliveries of its Cybertruck this year. Industry followers have estimated that there are already about 1.5 million preorders for the Cybertruck, based on a crowdsourced reservation tracker.
Tesla's business is already diversified and successful. The risk for investors now is really with the stock's valuation. After the recent recovery in its share price, its price-to-earnings ratio is up to 50. Though that is historically lower than past valuation levels for Tesla, it is still considered high relative to the rest of the stock market.
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