(gentle music)
- [Narrator] This is Tesla's Model 3 Sedan
and it's the cheapest Tesla Model in China.
And this is BYD Seal Sedan.
It looks very similar and it's one of the company's
most expensive models.
But with this range,
China-based BYD has closed in on Tesla's share
of the EV market in China.
China accounts for more than half of all EVs
sold globally in 2022,
and any company that can own this market
will have an advantage
at dominating the growing industry.
- There's a potential here
for new General Motors, for new Fords to emerge
and for China to be a dominant player.
- [Narrator] We compared BYD and Tesla's
business strategy, technology and manufacturing,
to understand who's positioned to win.
To see BDY's rapid growth in China,
just look at retail sales charts.
BYD, which is backed by Warren Buffett,
jumped from 13th place in 2021 to the top spot in 2022.
In that time, it's overall sales more than tripled,
hitting 1.86 million cars.
That's some half a million more cars than Tesla.
- [Elon] We have a lot of respect
for the car companies in China.
They are the most competitive in the world.
- In terms of volume,
The top car company producing EVs in China
is definitely BYD.
The caveat is that it's not a cool EV brand yet,
and that's why they introduce a new series of cars
with specs that car commentators would say
matching Tesla's Model 3.
- [Narrator] So while the Seal Sedan
sells for roughly $30,000,
some BYD Models sell for half that,
with most models having all electric
or plug-in hybrid option.
- Their strategy is really to ensure
that consumers have options.
- [Narrator] Tesla's fleet, on the other hand,
is all electric.
Unlike BYD, it's mainly positioned as a premium vehicle,
a revolutionary bet from the beginning.
- There was a kind of a belief
among traditional car companies
that somebody who would want an electric car
was going to be motivated by economic concerns,
the cost of gasoline.
Their thesis was, "Let's start at the top.
Let's make a cool, a sexy car,
that appeals to luxury buyers."
- [Narrator] For the most part, that bet has paid off.
If you look at each company's profit margins,
you can see Tesla exceeds BYD.
The company sells less vehicles with a higher profit margin.
But in early 2023, Tesla slashed prices
for its two most popular electric car models,
reducing prices in China by as much as 13%.
The company said the cuts were possible
through engineering innovations and cost controls,
but these cuts also came just before China began
withdrawing decades long subsidies for EV buyers.
- It's time now for the market to become more mature.
Smaller companies that were not profitable,
but who depended on these subsidies,
need to be able to do more to stand on their own.
- [Narrator] Tesla might have the marketing power
to weather the subsidy crash,
but BYD has its own strength, production,
specifically battery production.
This is just a sample
of some businesses that BYD operates.
As you can see, it's far more vertically integrated.
- BYD has three main areas of business.
It produces cars, it produces batteries for its cars,
and it also produces chips.
- [Narrator] Before BYD was an electric vehicle company,
its main focus was batteries.
And this battery branch of its business
ensures stability along the supply chain,
even while disruptions plagued its competitors.
Compare that to Tesla,
which continues to source the majority
of its batteries from outside suppliers.
- There's been this tension around Tesla from the get-go,
over its ability to get cells.
The idea was they'd be buying so many of them from suppliers
that they would have pricing advantage
and they could get the cost down.
It hasn't come down as much as they wanted
or as much as they thought,
but it has come down dramatically.
- [Narrator] Although the US government
is investing in this area of business,
even producing the raw and intermediate ingredients
that compose battery cells, requires outsourcing.
- When you think about where the ingredients
for these cells come from,
it's largely a China game at this point.
I think about lithium,
something like 70% of it is refined in China.
It's kind of worrisome to people here in the US.
- [Narrator] BYD uses its own Blade Battery,
which is a lithium iron phosphate battery known as LFP.
The LFP battery is the primary EV battery in China
and is generally viewed as a cheaper option,
since it doesn't use the costly elements, nickel and cobalt.
But it comes with a trade off, the battery's range.
- Range is a real issue for US consumers.
There is this mindset that there just might be a reason
why you need to go 300 miles or more in a trip.
And so that's one of the big kind of differences
between the China and the US market.
- [Narrator] In line with market preference,
Tesla's standard range models in China,
also use an LFP battery.
Its version is made by Chinese maker, CATL,
but it's long range models still use an NCM based battery,
that's nickel, cobalt, manganese.
Some even include aluminum.
It's more expensive, but can charge a car
for longer distances.
And in the US, Tesla primarily uses this type of battery,
but this may be changing.
Tesla is taking a page out of the Chinese market's playbook,
using LFP batteries in lower cost models.
So even as Tesla invests
in its own battery production in the US,
it'll still depend on Chinese resources for some time.
The final challenge for EV makers is getting their cars
where their consumers are.
BYD has a home base advantage in the China market,
but Tesla has gained some with this factory in Shanghai.
Built in 2019, this was the first of its kind for Tesla,
and frankly, for any foreign automaker.
- It got off the ground rather quickly.
In large part, because of the support
from the the local Chinese government.
They wanted to help Tesla get going.
- [Narrator] The local government in Shanghai
granted Tesla a corporate income tax rate
of 15% through 2023,
a significantly lower rate
than the standard 25%. (gentle music continues)
The factory deal helped slash production cost
for cars sold in the country,
and Tesla was also able to get
out of a joint venture agreement.
- For years, if you were General Motors
or you were Volkswagen,
and you wanted to build cars in China,
you had to share the profit,
you had to share the running of that joint venture.
And Tesla didn't wanna give up that kind of control.
- [Narrator] Today, Tesla sells in over 30 countries
with manufacturing plants in the US, China and Germany.
BYD, having taken over China, is just beginning
its global push.
Its passenger EVs are currently for sale in China
and a handful of other countries.
The US is not yet one of those.
- In part because of the US-CHINA tensions, right now,
it's hard for any Chinese car company
to say they're making a foray into the US market right now.
It's also hard for car companies
to just think about expanding into market
by exporting there purely without manufacturing locally.
- [Narrator] The fight for the global EV market
has a ways to go.
In China, the market needs to mature on its own
without government subsidies,
while the US needs to dramatically improve its supply chain
in the country and up its EV adoption rate.
As for the companies themselves,
BYD has yet to fully articulate its plans
to enter the US passenger EV market.
While China's biggest EV maker faces pressure to expand,
BYD said customer satisfaction is its main goal
and top priority.
- I've been writing about the automotive industry
for almost 20 years,
and there's always been this kind of belief
that the Chinese car companies were on the verge
of coming to the states.
We haven't really seen that yet.
Creating the infrastructure to sell the vehicles
is a challenge.
- [Narrator] Tesla did not respond to a request for comment,
but the company also faces its own obstacles ahead.
- They need to show growth to the investment community.
And we have seen investors really be forgiving
at the idea of chasing sales volume
at the potential cost of profitability.
- [Narrator] If electric vehicles are truly
the future of the car,
owning this market could be paramount
to a country's economy.
In order for that to be a reality for Tesla,
EV batteries will need to be made in America.
(gentle music ending)