Tesla Motors Inc is putting everything it has right now to work in an attempt to get the Model X out the door before the end of the quarter. Those with shares are likely focused on that release, but it’s the Model 3, due out in 2017, that will shape the future of the EV market. Tesla Motors is facing off against Warren Buffett in order to stamp its vision of the future on reality.
Warren Buffett, Chairman and CEO of Berkshire Hathaway, owns a substantial share of BYD, China’s most successful electric car firm. BYD isn’t anything like Youxai, the copycat that emerged last week. It’s a car firm with its own idea about what an EV should be and who should buy it.
Hybrids still work for BYD
BYD makes most of its sales in China, and its most successful car make a pure EV that compares to the Tesla Motors Model S. Instead the firm makes the Qin, a plugin hybrid that uses its power pack for short trips and relies on petrol for longer journeys.
Tesla Motors had problems selling the Model S in China because of a lack of charging infrastructure. A focus on hybrids, at least in the short term, has allowed BYD to avoid that problem. The firm has sold a total of 31,366 units of the Qin in China through June 2015.
The battery in the Qin is nothing on the Tesla Motors Model S. The power cell comes in at just 13 kWh, five times smaller than the lowest option on the Model S. It can’t compete on power either. The car goes from 0-60 in 5.9 seconds, a lot slower than the 2.8 second charge that Ludicrous mode on the Model S will allow when it arrives in the coming weeks.
Direct comparisons don’t flatter the Qin, but the car’s real power is in its price tag and its appeal to those who live in a country with poor charging systems. The BYD Qin costs around $31,000. A large subsidy from the Chinese government brings that cost down to just $25,400.
The Qin is facing the same market segment as the Tesla Motors Model 3, a car that won’t be released until 2017. Just because it’s a hybrid doesn’t mean that it shouldn’t be taken seriously. The Chinese government regards it as a new-energy vehicle, and Warren Buffett thinks the car is worth backing.
Buffett backs electric
Warren Buffett has warned of the dangers of putting cash behind new tech many times since he became a national voice on stock picking. He doesn’t see BYD as a bet on new technology, he sees it as a bet on a car maker in a massive new market for personal vehicles.
China is still having issues boosting sales of EVs, and the country’s new energy vehicle sales target of 500,000 for 2015 is nowhere near being met. The hearty payouts that the state pays every time a new EV is sold has helped support growth, but those payouts are going to contract in the coming years.
BYD has a massive plan to compete. The firm says that it’s going to start to focus more and more on EVs in the years ahead, and it’s one of the only firms that’s mirroring the Tesla Motors battery building projects.
Building power at BYD
Matthew Jurjevich, a spokesperson for BYD, said back in March that the firm would build 6 GWh of power cell production in each of the next three years in order to compete with Tesla Motors in the global EV market.
That build-out, if followed through, means 34 GWh of production by 2020, a level close to that expected from the Nevada “Gigafactory” being built by Tesla Motors. BYD began its business making power packs for cell phones more than 20 years ago.
Its business is coming full circle, and Tesla, despite the different market it occupies, should be paying attention. Nobody who is considering a Model S is likely to think about buying the BYD Qin, but that doesn’t mean the firms don’t compete.
Tesla Motors avoids the middle ground
Elon Musk reckons that he can get 500,000 car buyers to go full-on electric by 2020, and if he hits that target he’ll have achieved real success. 100 percent EVs aren’t for everyone, however, and the contribution made by firms like BYD should not be discounted.
If Warren Buffett manages to help drive growth in BYD in China, and other parts of the developing world, and BYD increases the size of the battery in the cars, it could be doing more to change the appeal of and demand for EVs than even Tesla Motors.
There are billions of people out there who have never bought a car, but will buy one at some point in the next thirty years. An almost overwhelming number of them live in India and China. Tesla Motors can’t be a major player in those regions because people don’t trust the charging systems.
They’re right not to. Blackouts and brownouts are common in parts of China, and they’re a daily occurrence in India. Tesla Motors, with its EV ambition, won’t be able to serve the needs of these people with the Model 3 in the same way that BYD will with its Qin.
BYD has already begun sales of its pure-electric e6, a car that still carries a price tag too high for the normal Chinese car buyer. That car has sold much fewer units than the Qin, making the firm’s focus on a hybrid seem much more reasonable.
People are not comfortable with a car that could run out of fuel when fuel shortages are common. In the US power rarely cuts out. In places like India, 20 percent of households don’t have access to it in the first place. The rest have to deal with precarious balance of supply and demand.
Approaching EV from different directions
BYD will, unless disaster hits, continue to focus on the new energy problem from an angle that Tesla Motors simply won’t consider. It’s not likely that a large number of people in China are going to jump onto the EV train because a Elon Musk told them so.
On the other hand, hybrid cars in the US and Western Europe have done little to reduce mass emissions because of low demand. Sales hit a high in 2013, but sank last year. In 2014 total sales hit 443,000.
BYD says it will begin to sell the Qin in the US this year. It will be priced just a little lower than the $35,000 Elon Musk says the Tesla Motors Model 3 will start at, and around the same price as the Nissan Leaf.
That means it’s unlikely to find buyers among the more green-conscious car-buyer. BYD’s success shows the depth and breath of the car market across the globe. It shows where the weaknesses of Tesla Motors are, and where the line will be drawn for the firm in the years ahead.
That doesn’t take away from Elon Musk’s success. Tesla Motors will sell more than 50,000 cars this year if it stays on track in the coming months. Very few of those sales will come from China, however, despite Mr. Musk’s prophecy of a sales boom in the country.