Ken Griffin told CNBC that BYD overtaking Tesla as the top seller of EVs was a "heartbreaking" moment.
The billionaire warned the West needs a strategy to cope with a wave of cheap Chinese electric cars.
It comes after Elon Musk said Chinese EVs would "demolish" their US rivals without trade barriers.
The Citadel founder told CNBC that watching Warren Buffett-backed Chinese automaker BYD overtake Tesla as the world's top seller of EVs was a "heartbreaking" moment, and warned that the West needed to come up with a strategy to deal with the coming wave of cheap Chinese electric vehicles.
"Watching BYD surpass Tesla in global sales was a bit of a heartbreaking moment," Griffin told CNBC's "Squawk on the Street" during the MFA Network conference in Miami on Tuesday.
"We often lose sight of the fact that the Chinese economy represents 1.4 billion people. So they have a huge advantage when it comes to simple economies of scale, combined with a strong education system that produces four times as many STEM graduates," he added.
His comments come after Elon Musk warned that Chinese EV companies would "demolish" their Western rivals without trade barriers being put in place.
BYD finally overtook Tesla as the world's biggest EV company earlier this month, and along with its rivals is now planning overseas expansion as the electric vehicle market back home becomes increasingly competitive.
"We've got a real competitor in China. And Elon's right, the West has to grapple with the issue," Griffin told CNBC.
"California wants no internal combustion cars in the foreseeable future. Are we going to make that happen by buying Chinese vehicles? Because that's the most cost-effective way to do so for American consumers," he said, acknowledging that it would be a "really hard pill to swallow."
Even market leader Tesla has been affected, with Elon Musk's automaker warning that sales are likely to slow in 2024 in the company's Q4 earnings call.
Griffin told CNBC that Tesla is still in a great position despite this, and said that the company had the opportunity to "create the software platform for the future of automobiles."
"Tesla has one great asset. Elon is a phenomenal entrepreneur … don't lose sight of the fact that Tesla makes a great car," he said.
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