Car Wars: China vs Tesla

Investment Analysis Clubs Macro Economic Trends and Risks
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It is fascinating to watch the competing strategies of the two entities that will dominate the future global automotive industry.

Chinese car companies have put in a huge order for massive car transport ships. About 170 such ships are currently planned with the vast majority of these for Chinese auto companies. They are making a big financial bet on the future global demand for imported made-in-China vehicles.

In contrast, Tesla is spending money on Gigafactories built in the major car markets. A very different strategy of regional production centers reducing the need for long-distance transport.

Meanwhile, the western car OEMs seem to be on the sidelines, watching as the auto world shifts beneath them. They fear the Chinese while falling further behind Tesla.

IMO, Tesla has read the tea leaves best. Developing nations all want to copy the Chinese economic miracle. Like India, these nations will choose a Tesla gigafactory that produces thousands of jobs over Chinese imports that undermine local companies. Musk is an odd fellow and a bit immature on social media, but he seems to be the only auto CEO capable of competing strategically and tactically with the Chinese.

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Those cars maybe useful in the 3rd world. Europe is beginning to lock out the Chinese EVs. The US wont allow them in quantities.

The third world wallets are not profitable for this. The car would be most of the per capita per year. It wont fly very far. The charger networks need to be built by the Chinese.

The Chinese can not afford to produce EV on that scale. The water is not there. Things have to give in China. Other factories won’t get resources.

There will possibly be ghosted ships as there are ghost towns in China.

The bigger issue Australia won’t supply Li to China.

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In Venezuela the policy was called “Import substitution.” We had several assembly plants including GM (where I installed an IBM computer) and Toyota that built the last car I bought. These were not real manufacturing plants. They imported Knock-down kits known as CKDs.

A common form of knock-down is a complete knock-down (CKD), which is a kit of entirely unassembled parts of a product. It is also a method of supplying parts to a market, particularly in shipping to foreign nations, and serves as a way of counting or pricing.[1] CKD is a common practice in the automotive, bus, heavy truck, and rail vehicle industries, as well as electronics, furniture and other products.

In time small supplier shops strung up making minor parts like seats. More industrialized nations like Argentina and Brazil made bigger parts like motors. My Dodge Dart has a V8 made in Brazil.

Tesla is more vertically integrated than the incumbents. It will be interesting to see how Musk handles it. For example, Giga Berlin is restricting production because the third shift is just too costly based on German labor laws. Every target country will need targeted solutions.

BTW, Venezuela expanded the Import substitution policy to include technology transfer which gave my management consulting company the opportunity to compete with KPMG, Booz Allen Hamilton, and a local firm to reorganize the National Dredging company’s adminstration (INC). We won the contract and it saved us from imminent bankruptcy. We got a follow on contract to create the accounting system that allowed INC to take over the dredging of the Orinoco river from Orinoco Mining, a US Steel subsidiary. The original contract with US Steel included a 50 year contract to maintain the Orinoco river navigation channel. This was the time when Venezuela was nationalizing the oil companies.

The Captain

There was a captain at INC who claimed that there was no such thing as an outboard motor, it would fall into the water. He called them “Onboard” motors. Lots of fun anecdotes from that job.

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I don’t know if that’s due to Tesla’s better ability to “read tea leaves.” BYD tried to build a factory in India - but was refused based on security concerns. They’re trying to open plants in Europe as well. We’ll see how that goes.

https://electrek.co/2022/12/07/byd-plans-to-build-passenger-evs-at-factories-in-europe/

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I suspect Chinese car makers will have to move manufacturing out of China if they want to sell more cars in other countries as that will be what is required to get real in-roads to those countries. Indonesia is potentially a huge market but they won’t be that happy if all the they gain is the car being imported and the payment exported.

https://www.freemalaysiatoday.com/category/business/2023/02/24/three-se-asian-countries-vie-for-byds-ev-plant/

You can always gain some access to a market by not being a big local player but if you really want to expand, expect the gov’t to want to know that your planned investment is in the local economy.

I don’t believe the Japanese car makers wanted to produce cars in the US as much as they were enticed to so they wouldn’t be looked at as taking away US jobs.

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Few Chinese EV makers are currently profitable. Even BYD is probably getting most of its profits from its hybrid sales. It remains to be seen whether Chinese companies can make a profitable BEV in countries with higher labor costs.

The only company that has demonstrated that ability is Tesla, with its plants in Berlin and Fremont.

Tesla’s most important product is not the Model Y. It is the gigafactory. It is a manufacturing process that gives it a significant cost advantage over its competitors.

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No - it often immediately has the top-selling BEV model. In many markets - including most of Europe - Tesla isn’t the number one auto manufacturer by sales. For example, we’ve been talking about Norway, and Tesla hasn’t been the market leader in Norway since 2019. The overwhelming majority of EV’s and BEV’s that are sold, and have been sold, in Europe aren’t Teslas.

And VW is also selling a bunch of EV’s in Europe. They’ve sold more EV’s in Europe than Tesla this year (and close to 10x than MG), with 20.3% marketshare compared to Tesla’s 12.3% (a large enough gap that we know that VW sold more BEV’s as well, since they don’t have many large-volume PHEV’s in their stable). And that’s actually up slightly from where they were the same time last year! VW has grown marketshare and sales volume from a year ago. They’ve actually been doing really well, among the OEM manufacturers - its BMW, Mercedes, and Hyundai-Kia that have seen their marketshares fall precipitously.

Tesla only dominates the EV market in North America. In most of the rest of the world, they are a very strong manufacturer, and are one of the top sellers in the market - but often lag behind a domestic producer in that market and make up only a modest part of the overall market. They contribute importantly, but not overwhelmingly, to the sales growth in any market outside of North America.

Here’s the bottom line - European EV sales for 2023 through August were 1.67 million units. Through the same time last year, they were 1.44 million units. That’s only a 15% rate of growth. EV/BEV share of the auto market went from 20%/12% to 22%/15%, respectively, YoY. That’s good growth, but hardly hypergrowth. Which is what VW - as the market leader in both EV’s and BEV’s in Europe - is pointing out.

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I’ll repeat once more in the hopes that you will read this. A harder look at the data suggests that those VW EV sales occurred because of a lack of Model Ys. Once the Berlin Gigafactory started ramping up production, the demand for VW BEVs has significantly softened. The more Model Ys Tesla makes available, the fewer VW BEVs are bought. That is what the 2023 data is showing:

The German car giant is facing stiff competition at home and abroad. Volkswagen entered into a price war with U.S. rival Tesla, which has cut prices and is now significantly outselling VW.

VW produced 97,000 battrey-electric vehicles between January and May of this year but only sold 73,000 of them, compared to 100,000 Tesla Model Y sales in the same period, according to data service provider Marklines, Handelsblatt wrote.

Again with gusto, the reduced demand for VW BEVs occurred because a whole lot of Model Ys showed up. Tesla is driving the BEV market.

Once again, a slowing of EV sales only appears if you include plug-in hybrids. If you look only at BEVs (all-electric cars), the s-curve is alive and well. That’s the real bottom line.

In August 2023 , EU battery-electric car registrations surged by 118.1%, reaching 165,165 units, accounting for 21% of the market…Overall, battery-electric car sales increased by a significant 62.7%, with nearly 1 million units registered from January to August. New car registrations: +21% in August; battery electric exceeds 20% share for the first time - ACEA - European Automobile Manufacturers' Association

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That’s simply not true, btresist. Compare YTD sales figures for VW’s BEV’s in Europe for 2023 to 2022:

Model 2023 2022 Growth
ID 4 50,414 28,669 76%
ID 3 39,711 21,180 87%
Skoda Enyaq 37,487 26,908 39%
Audi Q4 36,825 21,003 75%

VW’s selling more BEV’s than last year, despite Berlin opening up. Their EV marketshare in Europe, YTD, is higher than it was last year. They’re stilling selling more EV’s and BEV’s than Tesla, YTD. I think the difference stems from looking at actual sales data through the most current month, rather than looking at comments from unnamed “insiders” based on May sales. VW has picked up marketshare from May, and it’s not entirely clear that those specific “insiders” have a full picture of what’s actually happening across the entire auto group or the entire European market.

To be clear - I am not trying to argue or disagree whether Tesla’s Model Y is a more attractive product to consumers than VW’s various offerings. I am simply pointing out that the European (and global) EV and BEV markets are mostly made of up of non-Tesla cars, and that growth in Tesla production makes up only a modest proportion of global production and global growth. Only in North America (itself a modest EV market) does Tesla dominate - in the rest of the world, the overwhelming majority of EV’s aren’t Tesla’s. So if there is a fall-off in demand for non-Tesla EV’s, that’s a significant and real development in consumer sentiment that can’t be explained just by pointing to consumers switching to Model Y’s - because Model Y’s aren’t that big a component of the global or European EV market.

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I guess it depends on whose numbers you trust. Perhaps more informative is what the companies are actually doing. It is VW saying EV demand declining, not Tesla or MG. It is VW ending ID3 production from its Dresden plant. It is VW cutting staff from its main EV plant in Zwickau over “cratering demand”. “Cratering demand” doesn’t jive with your conclusions about the health of VW BEV sales. China is buying car transport ships, Tesla is building new gigafactories, VW is reducing EV production. Pretty obvious which company is in trouble.

People buy VW BEVs if there are enough incentives to settle for second-best. Without incentives, they will wait and buy a Model Y. Note that the “cratering demand” for VW BEVs in Germany is attributed to the ending of subsidies. Meanwhile, Tesla keeps on truckin’, with sales exploding through much of the EU as 2023 progresses. And this is occurring during difficult economic times for Europe. TMF has a video on Tesla’s remarkable European growth:

Look at the data. VW could not sell all the BEVs they produced in the first of half of 2023. That wasn’t a problem for Tesla. It is VW facing lagging demand, not Tesla. This is a VW problem. Compare the TMF video with the article below. The contrast is startling.

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Again, I’m not making statements about whether VW is in trouble or not. I’m just pointing out that Tesla isn’t the end-all, be-all of the European auto market - and certainly not to the point where exogenous changes in customer demand for non-Tesla EV’s don’t matter. The overwhelming majority of EV’s and BEV’s that are sold in Europe are non-Tesla, and Europe’s growth in EV’s has been driven mostly by non-Tesla companies. Here’s a chart showing the growth of European EV sales, both overall and ex-Tesla. You can see that the explosion of the European EV market has been due to the large-scale entry of OEM’s into the segment, not Tesla’s sales:

Europe Overall Tesla Ex-Tesla
2019 564,000 104,000 460,000
2022 2,602,000 230,000 2,372,000
Annual Growth 66% 30% 73%

You can say that Tesla has “driven” that sales growth by spurring the incumbents to finally enter the market, if you like (though I would argue that the whacking huge government incentives were at least as important a factor). But in terms of actual units sold, the growth of the EV market in Europe has been the story of the incumbents, not Tesla. Perhaps Berlin might change that, but I doubt it - even adding another few 100K to Tesla’s European sales doesn’t really change the picture all that much.

Now then - VW might be in a uniquely vulnerable position going forward. After all, Germany (VW’s home market) adopted one of the more severe curtailments of EV subsidies, which will be slashed for all models over the next two years and zeroed out for expensive ones by 2024. It may very well be that the softening of consumer demand they see for EV’s broadly may have repercussions for their expected sales relative to prior forecasts. That might not affect Tesla’s sales volume, since Tesla has claimed that they are willing to reduce prices to clear production all the way down to zero margin if necessary - so exogenous decreases in consumer demand won’t affect their sales volume, just their margins.

But the larger point still stands - the explosion of the European EV market is mostly a story of non-Tesla EV’s, and if there’s an exogenous drop in consumer demand for those non-Tesla EV’s, that’s going to have a significant impact. Because VW has gained marketshare in their EV’s and BEV’s over time, it’s unlikely that this is just VW observing consumer dissatisfaction with their products vs. those of other incumbents.

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That’s rewriting history. The Model 3 launched in Europe in the mid-2019s. Here is what happened in Dec 2019.

Electrified vehicles emerged as another big winner in December with demand soaring by 69% – equating to 132,200 units or 11% market share. In fact, the Tesla Model 3 was the most exciting performer of the closing month of 2019…Its volume made up 43% of the BEV registrations… https://www.jato.com/european-registrations-surge-by-21-in-december-with-tesla-model-3-the-third-best-selling-car/

That was the beginning of the European S-curve of BEV adoption. Something similar happened with the Model Y.

It is not so much a drop in consumer demand but a shift in demand to non-OEM models like those from Tesla. Western OEMs don’t fear imports from China or the next generation Tesla because they believe BEV demand is in decline. That fear is because they believe these new models will shift demand from their less attractive products.

In any case, you have so far presented no evidence of any decline in the demand for all-electric vehicles. To the contrary, all the data indicates rising demand for BEVs in Europe. Your and VW’s claim of slowing demand refers only to plug-in hybrids at best.

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It’s not rewriting history. The Model 3 launched in Europe and dramatically increased Tesla’s sales in Europe. That’s absolutely correct. But all the other incumbents also dramatically increased their production and sales in Europe as well. And because there were so many more incumbents, with so many more models, the volume of increased EV’s and BEV’s produced by non-Tesla makers just dwarfed the increased volume from Tesla.

The story of EV’s in the US is a story of Tesla. Tesla has consistently been the largest manufacturer of EV’s and BEV’s and the only auto manufacturer to devote significant product to the market. It has always been the case that growth in the U.S. market depends on Tesla’s production growth, and that even a significant increase in production by anyone other than Tesla would be inconsequential (from current levels). But while that story has been true in the U.S., it isn’t true in Europe.

Not at all. No one is claiming that the demand for BEV’s is declining, an absolute sense. Just that demand is softening. EV sales growth in Europe has slowed to only 15% (YTD through August). The market continues to shift from PHEV’s to BEV’s - but overall, the sales of cars with plugs has been growing modestly. Which means, concomitantly, that demand for ICE vehicles continues to be robust. Still shrinking a bit, obviously - but not nearly as fast as it used to be.

This should not be surprising. Most of the largest European EV markets have been cutting their subsidies for EV’s - Germany, France, the UK, even Norway have cut their subsidies (Sweden eliminated theirs altogether) effective this year. It would be shocking, and contrary to the theory supporting those subsidies in the first place, if that didn’t have an effect on demand for the vehicles. We saw a similar impact as countries phased out their subsidies for PHEV’s, and now that’s happening for EV’s.

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Just to be accurate. BEV sales in Europe are growing much faster than ICE sales. That is primarily due to Tesla. The August 2023 sales figures are just coming out. Some highlights:

  • For the 5th month this year, the Model Y is the best selling car in Europe. Not just the best selling EV, but the best selling car of all types. That is a remarkable achievement for an import that is all-electric and relatively expensive. Europeans want the Model Y, and because of that BEV market share in Europe is increasing rapidly.

  • For the first 8 months of 2023, Tesla registrations have increased 198% across Europe year-to-year. This is at the same time VW claims BEV demand in Europe is softening.

  • In August, European BEV new car registrations increased 118%, leading to a record 21% market share. Plug-in Hybrid registrations increased 5.5%, with a decline in market share from 8.5 to 7.4%. Non-hybrid ICE registrations increased 2.2% and declined in market share. Hybrid ICE registrations increased 29%. Bottom line: BEV sales are rising much faster than any other drive train category.

  • For the year, BEV sales in Europe is up over 60%. And this is before any substantial impact from Chinese imports

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New car registrations: +21% in August; battery electric exceeds 20% share for the first time - ACEA - European Automobile Manufacturers' Association.

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I noted in my post that BEV sales in Europe were increasing faster than ICE sales. But not much faster.

Here’s a little handy table showing the growth of EV’s, BEV’s, and Tesla’s sales in Europe over time:

Total EV BEV Tesla BEV ex-Tesla Tesla share BEV
2023 (est.) 3,000,000 2,000,000 375,000 1,625,000 19%
2022 2,602,431 1,587,483 240,000 1,347,483 15%
2019 564,206 361,092 105,000 256,092 29%
CAGR (2019-2022) 64% 74%
YoY 2023 26% 21%

For 2023, I just basically prorated the data through August for a full year to a first approximation, assuming that Tesla would increase sales in the back half per Troy Teslike’s full year estimates. You can see, as we’ve discussed, that the BEV market in Europe - and the growth in the BEV market in Europe - has largely been a phenomenon of incumbent manufacturers flooding the market with product. Back in the days of Model 3 hegemony, Tesla had nearly 30% market share - but those days are long gone. Incumbents responded by selling BEV’s in overwhelming numbers. They’ll sell about 1.6 million BEV’s this year - completely dwarfing Tesla’s output, even as Berlin ramps up.

The key here are the annualized growth figures. The growth rate from 2019-2022 for BEV’s was about 64% - but that’s going to collapse to only 26% this year, even with Tesla vastly increasing its sales to Europe. That’s not what’s supposed to happen. Tesla getting its European factory ramped up to near-full capacity ought to speed up the rate of Euro adoption of BEV’s. But it’s not going to happen.

The reason is that you have an exogenous reduction in demand growth for BEV’s generally. Tesla’s primed to steal marketshare from other incumbents within that reduced demand growth (not from VW - mostly from BMW, Nissan-Renault, and Hyundai-Kia). Demand is still going up (26% isn’t nothing), but the rate of growth is vastly lower than in recent history.

Again, this is not surprising. The largest European markets, both by overall size (Germany, UK, France) or by BEV size (Norway, Sweden) have all implemented significant cuts to BEV subsidies in 2023. All of them reduced subsidies or imposed price caps; some of them zeroed out subsidies altogether. And the countries that had the very most generous subsidies and most propitious environment for EV adoption (again, like Norway) have basically “filled up” now - there’s no more room for any significant EV growth in those countries.

So yeah - Tesla’s going to dramatically increase its sales to Europe this year, but Tesla’s just not a big enough piece of the market for that to overcome the general slowdown in the rate of BEV growth.

(All sales figures from cleantechnica reports cited several times upthread. 2023 estimates derived from pro-rating sales figures through most recent reports.
Estimate of Tesla’s year-end sales were increased sizably from pro-rata figure to match Troy Teslike’s estimate:

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The problem with your projections is that it differs from the real world.

Year to date data shows Tesla 2023 European registrations have increased 198%, coincident with European BEV new car registrations increasing 62.7% for the same time period. Furthermore, BEV adoption appears to be accelerating, as August 2023 new registrations increased 118%.

Where is the collapse in demand? What you claim is not supposed to happen is in fact not happening.

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No, it shows that YTD Model Y registrations have increased 198%. That’s entirely consistent with what I posted upthread. Last year, Tesla sold about 140K of the Model Y in Europe; this year, they’ll sell about 270K of it, which is pretty much on line for your article (the rest is the unwinding of the sales waves, which as a Tesla investor you don’t need me to explain). But Tesla’s total sales aren’t going to increase by that amount, because Model 3 sales (which were 40% of of Tesla’s European sales last year) aren’t going to grow at all (they’ll be about 90K). So Tesla nearly doubles their Model Y sales, but because they’re not growing Model 3 at all their overall sales will only increase by 60%, or roughly 135K units. Meanwhile, BEV sales by incumbent carmakers will likely increase by about 280K units (about double Tesla’s).

As for the claim that the overall BEV market has increased by 60% from the same period last year…for the life of me, I can’t figure out where they source that from. The absolute number is consistent with what everything else points to (about 2 million BEV units being sold in Europe this year), but the YoY comparison makes no sense. The numbers only work if there were about 600K BEV’s sold through August last year - which is flat out wrong. Total EV sales through August in 2022 in Europe were more than 1.4 million units, of which 60% were BEV’s - just under 900K units last year. I think they just made a mistake.

Subsequent edit - Yeah, it’s clear that either their comparison data for 2022 is mistaken, or they’re not being careful with their math. There were actually about 100K BEV’s sold in Europe in 2022. Your source is claiming that they’re up to 165K…but that it represents a 118% increase from 2022. That’s not right. They’re using the wrong figures for 2022. I tried to look at their corresponding press releases for August 2022, but they weren’t issuing any reports on EV/BEV adoption back then - this is apparently something new they’ve introduced, so it’s likely that they’re just using bad data for their 2022 comparisons.

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My data is from the European Automobile Manufacturers’ Association (ACEA) for the EU. EU BEV sales per quarter in 2022:

2022 q1 224,145
2022 q2 233,413
2022 q3 259,449
2022 q4 406,890

The first half of 2022 had about 458,000 new BEV registrations. The first half of 2023 had 704,000 registrations. That’s about a 54% increase year-to-year. The article I previously linked adds in data from July and August, which showed an acceleration of BEV sales. That brings the increase up to over 60%.

Also note that in 2022, 60% of BEV registrations occurred in the second half of the year. If the same occurs in 2023, BEV registration for the EU will approach 1.8M for 2023. That would be a 60% increase over 2022. It could be greater if enough Teslas are made available.

I think demand for the Model 3 has already increased with the Highland refresh. It’s just a question of how much supply will be available.

Now Tesla has already warned that production in the second half of 2023 will be reduced because Gigafactories are being upgraded and will take some downtime. This means one might see reduced BEV registration in Q3 and Q4, but this will be primarily because of a lack of supply from Tesla rather than reduced demand. The demand for BEVs remains robust as seen from the data for the first 8 months of 2023.

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Well, at least we’ve identified the source of the discrepancy. Those numbers are wildly different from every other source I’ve seen on European BEV adoption (cited at the bottom of this post). Your numbers suggest that only about 1.1 million BEV’s were sold in Europe in 2022. I’ve never seen such a low figure cited before - everywhere else I’ve seen has the figure at around 1.57 million. And indeed, press reports of what the ACEA said the sales for 2022 are different than what you’re posting:

Battery-electric vehicles continued to make inroads in the European market in 2022, according to ACEA, the European automakers group.

Sales grew to nearly 1.6 million units, up 29% over the previous year’s total, and accounted for 13.9% of new-car demand in the market. Compared with seven years ago, sales were up sevenfold.

https://www.wardsauto.com/industry-news/bev-sales-europe-29-year-year-2022

Do you have a link for the figures that you quoted above? I wonder if this is an EU vs. EU/EFTA/UK discrepancy. The UK, Norway, and Iceland are non-trivial BEV markets but are not EU members - the latter two are part of the Schengen area and are members of the European Free Trade Area, but are not members of the EU, and UK is obviously off Brexit-ing on its own.

Right. Exactly. In my post above, I had back-of-envelope put a WAG of about 2 million BEV’s for 2023. Which would be about a 25% increase over 2022 - because again, 2022 had closer to 1.6 million BEV’s sold in Europe, according to every source I’ve seen.

Which is good! Selling 25% more BEV’s in 2023 than 2022 is still an increase in sales, about 400K more units! Most of that increase will come from incumbents, but maybe about 130-140K will come from Tesla - no shade being thrown.

But it’s not a growth rate that will bring Europe as a whole along an S-curve. EV optimists talk about those curves moving countries from 10% to 80% share within six years, which is a 40% growth rate. But Europe’s growth rate for BEV’s as a whole will probably be only 25-26% this year (it’s even lower for EV’s more broadly) - and falling. That points to a much slower transition for the broader market than what we saw in Norway, Sweden or Iceland - and that there may not be any real magic in getting a market past 10% adoption.

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Of course, assuming a straight line or even a presumed S curve for 5 or 10 years is likely to miss the mark. Either one will see tapering one did not predict because resistance develops in the market or one will see acceleration as BEVs gain acceptance and full variation of configurations becomes available.

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