The Tesla-versus-BYD rivalry is far fuzzier than it may seem

Plenty, actually. Start with the basics. In December, BYD sold 235,197 vehicles in China. Of those, 122,659 were plug-in hybrids and the rest were battery electrics, or BEVs. It sold over 900,000 of each type in 2022. Tesla made 55,796 BEVs in China last month and a total of over 700,000 for the year.Essentially, they compete in what investors would call a product segment—a slice of what the company does. Here’s the thing: Hybrids and BEVs run on different technologies and power-trains. The cost of the car (including owning it) changes as does the choice between efficiency, range and performance. Hybrids can be as much as half the price, too. The merits of one versus the other is a separate debate. Critics say plug-ins aren’t even green cars. The likes of Toyota, for instance, say hybrids lower emissions while being affordable. They are a compliance solution. Sweeping parallels can’t be made.

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Next, BYD and Tesla employ distinct strategies, largely because they have starkly different business models. It isn’t as simple as which one can churn out more vehicles faster. BYD started out as a battery company that now also makes and sells cars. It has secured access to heaps of raw materials required to make EVs and batteries. It has a firm grip on the supply chain and has moved toward a more vertically integrated model while nailing the technology. Despite Elon Musk’s chat about owning lithium mines, Tesla is still reliant on its supply network in China. It gets power-packs from the world’s largest maker, Contemporary Amperex Technology Co, and is tapping BYD as well.

Viewed through that lens, their opposite moves in recent months make sense. BYD and Tesla altered their strategies following the withdrawal of decades-old EV subsidies in China at the end of 2022. BYD upped the prices of its vehicles and released a high-end line of EVs that could cost over a 1 million yuan ($147,721). Tesla, meanwhile, slashed prices and took Chinese lockdowns as a chance to roll back production. It also introduced consumer incentives. Some may attribute this to a demand slowdown, rising competition or even overcapacity.Tesla seems to have taken advantage of a weakness in prices for some raw materials and components that have been sky-high in recent months in China. It doesn’t have supply locked up, like BYD does. Lowering vehicle prices potentially indicates an intent to tap rising demand for electric cars priced below 300,000 yuan and destock. Sales are expected to grow 50% in tier 3 and 4 Chinese cities where incomes are lower. The firm is revamping and simplifying its Model 3 to lower production costs, and is expected to release two new models this year. Call it a switch to a more mass-market approach.

BYD, though, has turned to the higher end. Along with popular offerings priced between 100,000 and 200,000 yuan, it wants to break into first- and second-tier cities where demand for luxury, homegrown products will only grow. With “common prosperity" in the air, few want to be seen driving a Porsche electric SUV on the roads of Beijing these days. Hybrid sales have grown steadily—and are expected to stay strong—since they were included in government subsidy lists.

We can debate which approach is best, or who makes the better product. Still, for investors, all this means the calculus of earnings growth expectations, margins and operating costs is vastly different.

Now that companies are starting to show how much they can actually manufacture (if at all), it’s worth taking a deeper look. Last week, as Tesla slashed its vehicle prices, stocks of other new-age EV makers fell. Companies like Li Auto are bunched with EVs but are they really that? The Li ONE, for instance, has a battery backed by a so-called range extension system, which is really a fuel-efficient internal combustion engine. Put simply, a battery being helped along by a gas tank. Nio is increasingly pushing a battery swapping and leasing model, which means the core value of the car doesn’t lie in the power-pack as it does for other EVs.

Unlike the traditional auto industry, where all cars were just four-wheeled gas-guzzlers with varying sizes of engines, EVs are an evolving technology and present a much more differentiated case. Manufacturing them isn’t like making the batteries they use. As green cars become more mainstream, it’s time for a reassessment to avoid unpleasant surprises.

Anjani Trivedi is a Bloomberg Opinion columnist.

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