Not All EVs Are Equal. Look at the Tesla-BYD Rivalry


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All electric vehicles are not the same, nor are the companies that make them. Investors love dumping these new-age businesses into one basket regardless, losing nuance along the way.

The favorite pair these days is Tesla Inc. versus Berkshire Hathaway-backed BYD Co. Looking for similarities between the two has been particularly pronounced after the latter’s vehicle sales surpassed the former’s in 2022 in China. The world’s largest electric-car makers going head-to-head in the world’s second-largest economy, competing for the top spot — what’s not to compare? 

Let’s start with the basics.  In December, BYD sold 235,197 vehicles in China. Of those, 122,659 were plug-in hybrids and the rest were battery electrics, or BEVs. It sold over 900,000 of each type in 2022. Tesla made 55,796 BEVs in China last month and a total of over 700,000 for the year.(1)Essentially, they compete in what investors would call a product segment — a slice of what the company does. Here’s the thing: Hybrids and BEVs run on fundamentally different technologies and powertrains. The cost of the car — manufacturing it and owning it — changes as does the choice between efficiency, range and performance. Hybrids can be as much as half the price, too. The merits of one versus the other is an entirely separate debate. Many critics (think Greenpeace) say plug-ins aren’t even green cars — more like a wolf in sheep’s clothing. The likes of Toyota Motor Corp., for instance, say hybrids do what’s on the tin: lower emissions while being affordable. They are a compliance solution. But we’ll leave it at that for now. Good or bad, drawing sweeping parallels is foolish.

Next, BYD and Tesla employ distinct strategies largely because they have starkly different business models. It isn’t as simple as which one can churn out more vehicles, faster. BYD started out as a battery company that now also makes and sells cars. It has secured access to heaps of raw materials required to make EVs and their batteries. It has a firm grip on the supply chain and has moved toward a more vertically integrated model while nailing the technology. Despite Elon Musk’s chat about owning lithium mines, Tesla is still reliant on its long and deep network of suppliers in China. It gets powerpacks from the world’s largest maker, Contemporary Amperex Technology Co., and is tapping BYD as well.

Viewed through that lens, their opposite moves in recent months make sense. BYD and Tesla altered their strategies following the withdrawal of decades-old EV subsidies in China at the end of last year. BYD raised prices for its vehicles and released a high-end line of EVs that bear resemblance to Land Rover’s Defenders or Mercedes-Benz Group AG’s G-Wagons, move like Lamborghinis, and could cost over a 1 million yuan ($147,721). Tesla, meanwhile, slashed prices and took the nation’s lockdowns as an opportunity to roll back production. It also introduced consumer incentives in December. Some may attribute this to normalizing demand growth, which is widely expected to slow to around 30% (versus around 90% last year), or rising competition or even overcapacity.

Tesla seems to have taken advantage of the weakness in prices for some raw materials and components that have been sky-high in recent months in China. It doesn’t have supply locked up the way BYD does. Lowering vehicle prices potentially indicates an intent to tap the rising demand for electric cars priced below 300,000 yuan and destock. Sales are expected to grow 50% in tier 3 and 4 Chinese cities where incomes are lower. The firm is revamping and simplifying its Model 3 to lower production costs, and is expected to release two new models this year. Call it a switch to a more mass-market approach.

BYD, for its part, has turned to tapping the higher end of EVs. Along with its already popular offerings priced between 100,000 yuan and 200,000 yuan, it wants to break into first- and second-tier cities where demand for luxury, homegrown products will only grow (a hat tip to President Xi Jinping’s nationalistic Common Prosperity rhetoric). Let’s just say, few want to be seen driving a Porsche electric SUV on the roads of Beijing these days. Hybrid sales have grown steadily — and are expected to stay strong — since they were included in government subsidy lists. 

We can, no doubt, debate which approach is best, or who makes the better product. Still, for investors, all this means the calculus of earnings growth expectations, margins and operating costs is vastly different. Comparing their forward multiples just doesn’t make sense.

Now that companies are starting to show how much they can actually manufacture (if at all), it’s worth taking a deeper look. Last week, as Tesla slashed its vehicle prices, stocks of other new-age EV makers fell. Companies like Li Auto Inc. are bunched with EVs but are they really that? The Li ONE, for instance, has a battery backed by a so-called range extension system, which is really a fuel-efficient internal combustion engine. Put simply, a battery being helped along by a gas tank. Nio Inc. is increasingly pushing a battery swapping and leasing model, which means the core value of the car doesn’t lie in the powerpack as it does for other electrics.

Unlike the traditional auto industry, where all cars were just four-wheeled gas-guzzlers with varying sizes of engines, EVs are an evolving technology and present a much more differentiated case. Manufacturing them isn’t like making the batteries they use. As green cars become more mainstream, it’s time for a reassessment to avoid unpleasant surprises.

More From Bloomberg Opinion:

• China’s Got the Dysprosium. That’s a Problem: Andreas Kluth

• Driving a Tesla in California Is Really Expensive: Liam Denning

• Who’s Got It Right on EVs: Musk or Buffett?: Anjani Trivedi

(1) Tesla also exports some of the vehicles it produces in China. In 2022, the company delivered about 440,000 cars to local customers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist. She covers industrials including policies and firms in the machinery, automobile, electric vehicle and battery sectors across Asia Pacific. Previously, she was a columnist for the Wall Street Journal’s Heard on the Street and a finance & markets reporter for the paper. Prior to that, she was an investment banker in New York and London

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