With Tesla (TSLA) earnings grabbing headlines this week, China’s largest EV maker quietly marks a historic milestone.

For the firs time, BYD Co. (BYDDY) has surpassed Tesla in quarterly revenue. BYD’s sales jumped 24% to $28.2 billion in the quarter ending September, edging out Tesla’s $25.2 billion for the same period.

This marks a significant milestone for BYD, which saw gross margins of 21.9% and an 11.5% rise in net income to $1.63 billion—nearing Tesla’s $2.2 billion profit.

Setting a new record, BYD shipped 1.12 million EVs and hybrids over the three-month stretch. Meanwhile, Tesla produced 463,000 EV-only units.

Despite comparable revenue and net income figures, Tesla’s market cap remains over six times larger than BYD’s. On October 30, TSLA closed at $257.55, giving it a market cap of $826.75 billion—nearly 7x BYD’s $120.26 billion.

Critics continue to highlight Tesla’s dependency on government subsidies, with $739 million of its latest quarterly income coming from carbon credits—a significant driver of net income.

In China, direct government support isn’t as controversial.

According to Germany’s Kiel Institute for the World Economy, BYD has reportedly received at least $3.7 billion in subsidies as part of China’s push to lead the EV market.

In addition, Chinese consumers can trade in older vehicles for a $2,800 grant, with 1.57 million applicants registered as of late October.

The battle for EV dominance

BYD has been on Elon Musk’s radar since 2011 when he dismissed the idea that the Chinese company could ever compete with Tesla. He appears less confident now.

In 2023, Musk acknowledged, “There are probably some companies out of China [that are] most likely to be second to Tesla.”

During a surprise visit to Beijing this past April, he noted that Chinese EV manufacturers would likely “demolish” their competitors if not for trade barriers.

Chief among them is the hefty 27.5% import tax on Chinese vehicles shipped to the United States.

While Musk didn’t specifically mention BYD, it’s clear he was alluding to the company. As China’s largest EV manufacturer, BYD also holds the title of the world’s top seller of battery-powered vehicles.

BYD's remarkable growth is largely driven by the rapid adoption of electric vehicles in China.

Chinese EVs tend to be smaller and more affordable, making them more appealing to average consumers. Last year, more than one-third of new cars sold were EVs or hybrids, according to the International Energy Agency (IEA).

In contrast, only 10% of new cars sold in Tesla’s home market were electric.

EV market share

Source: International Energy Agency

The IEA projects that up to 45% of new cars in China could be electric by 2024, compared to just 11% in the U.S.

Even top industry executives acknowledge that China has leapfrogged its competitors through innovation and a commitment to clean energy transition.

“What the Chinese have been able to do in the past 10 to 12 years in terms of quality of the vehicles is pretty amazing,” said Ford CEO Mark Fields, praising China’s EV market.

“The designs have improved a lot, and the quality has improved a lot.”