Tesla started a price war it couldn’t win in the world’s biggest car market – and it seems to have backfired big time.
What does this mean?
Tesla thought it found the key to unlock China's massive car market by initiating a price-slashing spree in the EV realm. But instead of revving up sales, the "nuclear" strategy sparked an industry-wide price war that seems to have backfired for the electric trailblazer. See, Chinese EV enthusiasts have been switching gears and choosing Warren-Buffett-backed BYD's sleek, wallet-friendly rides over Tesla's pricier stallions. That’s seen BYD sell a jaw-dropping five times more cars than Tesla in China in January and February. And with the Chinese firm’s first-quarter sales predicted to jump by 80% – after a profit boost of over 400% in 2022 – Tesla could be in for even more high-voltage competition.
Why should I care?
The bigger picture: Buying local.
One way that BYD keeps prices so low and tempting is through its well-oiled supply chain, from mines to batteries and chips. And it's not just BYD: Chinese customers have been taking note of foreign brands' hefty price tags compared to local carmakers across the board, leading them to embrace homegrown offerings. That could be why one clued-in consultancy thinks 2023 will be the year that local brands finally overtake their foreign counterparts in China.
Zooming out: Pedal to the metal.
Tesla might want to rev up sales in the Chinese car market, but it’s trying to reverse its dependence on the country’s supply chains. See, China mines two-thirds of the world’s rare earth metals, and they’re prone to wild price swings (due in part to their vulnerability to trade tussles with the West). But Elon's EV empire isn't spinning its wheels: Tesla's already trimmed its use of rare earths by a quarter in Model 3 and Model Y cars, and upcoming models are said to be even leaner on those precious resources.
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