So, it’s a straight fight now. BYD versus Tesla. American ingenuity versus Chinese bargain-basement production. Sophisticated cell management versus low-cost battery chemistries. The world’s most charismatic businessman versus the nameless, faceless bureaucracy that is Chinese industry. A nadir has been reached, and pretty much the entire automotive world will be watching how this latest twist in the electrification transition will unfold.
In case you missed it — and depending who you ask and the criteria you set — BYD is either the new king of all EVs or simply breathing down Tesla’s neck. Barron’s, for instance, posits that “BYD Tops Tesla, Takes Global EV Production Crown” and reports that the Chinese company, thanks to an amazing 144,000-unit September, produced some 440,000 battery-powered vehicles in the 3rd quarter, marginally ahead of the 430,488 EVS Tesla built during the same timeframe. Meanwhile, China’s number-one auto news site CarNewsChina reports that “BYD’s BEV sales in Q3 have reached 99% of Tesla’s,” countering that Tesla outsold 435,059 pure BEVS to 431,603 for BYD — an impressive 99.21 per cent of Tesla’s total.
On one hand, the difference would seem the splitting of the tiniest of hairs; on the other, considering Tesla’s erstwhile domination of the global EV market, this is big news. It’s huge news even, especially given that an even closer look to the numbers suggests that momentum, a powerful factor in economic outlooks, favours the burgeoning Chinese giant.
For one, Barron’s reports that BYD’s 440,000 BEVs represent a whopping 67-per-cent year-over-year increase for BYD’s third-quarter. Tesla’s worldwide third-quarter production, on the other hand, was up but a ‘mere’ 18 per cent compared with last year. And while Tesla delivered 1.7 million EVs in the last 12 months compared with ‘just’ 1.3 million for BYD, BYD also sold 136,000 “new energy vehicles” — plug-in hybrids to you and me — in September, bringing its third-quarter total to 824,001 vehicles, which pretty much makes them runaway leaders in plug-in sales. Tesla is hardly in the dog house, but the disruptor is definitely being disrupted.
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What to make of all this?
The biggest losers in this battle of titans, as Motor Mouth detailed three weeks ago, are European automakers. Oh, China is making great inroads into the Russian market, but that’s only because they’re the only country willing to sell cars to Russia. And they are already leaders in Thailand, Brazil, Columbia, and Israel, while BYD is looking to introduce new model ranges in Mexico, Australia and Hungary.
But those are relatively small fry. It is, as I said, the Schengen area that BYD is truly targeting. BYD’s European sales were up some 323 per cent in the first half of this year, reports Barron’s. Oh, Tesla still reigns supreme in overall sales, but, by far, the biggest recent gains have been by BYD and some of its Chinese counterparts. Perhaps more importantly, PriceWaterhouseCoopers expects the E.U. to import some 800,000 Chinese EVs by 2025. Whatever happens in the future, the fact remains that BYD’s surge over the last 12 months has been fuelled by a continued domination of the (surprisingly) still buoyant Chinese EV segment and its invasion of the E.U.
Said invasion has not gone unnoticed. In fact, European governments are racing to bolster their domestic automakers, lest they fall decimated by these low-cost interlopers just as auto manufacturers bear the huge capital investments required to transition to battery power.
Indeed, on the same day that BYD announced its numbers, the Italian government revealed that it is exploring a novel scheme to protect its auto industry. It’s novel because, according to Reuters, the E.U.’s competition rules “do not allow countries to favour local producers.” In other words, no tariffs specific to Chinese automakers are allowed, nor can they — as America is doing with its Inflation Reduction Act – subsidize only those EVs and batteries built locally.
The workaround, however, is genius. What they will instead incentivize is car purchases that reward low-carbon manufacturing. And as Reuters so assiduously points out, most Chinese production is still fuelled by coal-generated electricity. The cars must also be shipped from China, the fossil-fuelled boats they arrive on also contributing to their carbon footprint.
To be fair, the idea was really France’s, which contends that it is not breaking any rules because, as Reuters points out, “exemptions are allowed for health and environmental reasons.” If these rules prove WTO-complaint and other member of the EU adopt similar incentivization strategies, that would seem to advantage Tesla.
Except that many of the Teslas sold in Europe are built in China, not the good ol’ US of A. The exemptions proposed may not be strictly country-related, but anyone producing their products in coal-dependent China will face significant damage. And, in fact, according to Bloomberg, Tesla is being included in the “Chinese” companies being investigated by the E.U. for unfair trade practices. No wonder then Musk is planning to ramp up production in Berlin.
Depending on how quickly European governments get their protectionist houses in order, that would leave America the most obvious battleground between the two giants. For now, of course, Tesla reigns supreme in North America, the Texas-based giga-giant dominating the American EV segment with an almost 60-per-cent market share; Chinese automakers, BYD included, are not even a blip on its (wind) screen. And with the Inflation Reduction Act’s massive subsidization of domestic-built EVs, the advantage for automakers to produce battery-powered vehicles in the States would seem to be unassailable.
Again, except for the Chinese — or at the very least, it would be close. There’s been little public reckoning of how much less it costs to produce an EV in China versus America, because the threat thus far has remained theoretical. But in Europe, where penetration is already underway, various studies cite an enormous Chinese advantage. Reuters reports that “China has a 10,000-euro cost advantage in small EVs;” Bernstein Research that China “can produce EVs which are 50 per cent cheaper than the West.” Whatever the exact number, it is significant.
Countering this is the IRA — that which President Biden hopes will keep America cost-competitive with China — offering up to US$7,500 to consumers for the purchase of a built-in-U.S.A. EV; the same legislation also offers manufacturers up to $45 per kilowatt-hour to produce said BEV’s batteries domestically. Do the math, and a 100-kilowatt-hour electric vehicle, built in the U.S.A. and powered by domestically produced batteries (and from minerals sourced from Canada, Mexico, or the States) could have about US$12,000 of government money incentivizing it.
That makes Chinese manufacturers — again, led by BYD — seemingly the only country that can take on the Biden’s IRA without building plants here in North America. Indeed, once the Chinese invasion of North America begins, I suspect the key question as to who wins and who loses will be: who do you think can last longer? China’s ability to keep on producing low-cost, low-wage EVs? Or the American government’s ability to dole out hundreds of billions of dollars to shore up local production?
Author’s note: Some will dismiss this discussion as reductivism too far. It may well be. It largely, for instance, ignores factors including established chains of distribution, nativist rejection of otherwise-competitive product, the possibility of further American protectionist policy, and the very real possibility of wage inflation in China. Nonetheless, the monies being bandied about — one country currently enjoying an immense cost advantage, the other throwing around ungodly heaps of taxpayer dollars trying to defend its domestic automakers — are so astronomical that all other criteria would seem largely trivial. Indeed, I really do think that the battle for bragging rights in the EV world reduce to the simple battle between massive subsidization against overwhelming cost advantage. I have no idea who’s going to win this Tesla-versus-BYD tussle, but it sure will be fun to watch.