28 Feb The Electric : Is the EV Race Already Over?
Media Source : The Electri
by Steve LeVine
The EV race has barely begun and already two companies have taken a seemingly unassailable lead. This week, we look at how front-runners Tesla and China’s BYD managed to get so far ahead.
Byd displays its electric Tang SUV at the Brussels Expo in Belgium in January.
Photo: Sjoerd van der Wal/Getty
As the world’s automakers intensify their scramble to go electric, Tesla and China’s BYD have run away from the pack with sales of millions of electric vehicles, and seem likely to maintain the lead through the end of the decade. The game isn’t over. But other auto manufacturers could be relegated to fighting over relative crumbs of EV sales through at least the early 2030s, and some could be at risk of shrinking below their current size.
That Tesla and BYD are the front-runners is not all that surprising. In new industries, scrappy companies often emerge the early leaders, and that’s how both began: BYD started out producing batteries for phones in the 1990s, but by the early 2000s it had expanded into making cars. From there, the two companies followed similar paths: There were few EV batteries, and none either thought adequate, so they designed their own. BYD designed and made its own semiconductors, and Tesla reprogrammed chips it bought from others. Before other automakers saw a need, Tesla snagged supply contracts for lithium, nickel and graphite, and BYD struck deals to mine and process its own lithium. Both planned battery and EV assembly plants far ahead of consumer demand, building the capacity to make millions of cars before motorists showed they wanted them.
This vertical integration, similar to Henry Ford’s road to the top of the auto industry a century ago, is largely what sets Tesla and BYD apart today. The result: As supply chain snafus hobble rivals, Tesla says it’s on track to sell up to 2 million EVs this year, 50% more than in 2022, and analysts expect BYD to sell 3 million EVs and hybrids, 62% more than last year.
By comparison, General Motors sold about 39,000 EVs last year—3% of Tesla’s deliveries—and claims it will sell about 360,000 EVs from now through the middle of next year. Ford, which sold 61,500 EVs last year, won’t forecast 2023 sales but says it will have the capacity to make 600,000 EVs annually by the end of the year.
Neither forecast seems realistic, but the traditional automakers suggest these early years won’t be decisive. GM, Ford, Volkswagen and most of the others say the starting gun for EV sales will actually be the middle of the decade, when virtually all the major automakers plan to offer dozens of different types of new EVs. By 2025, GM says it will offer 30 EV models and have the capacity to produce 1 million EVs a year; VW plans the same number of EV models by then and to sell 2 million to 3 million EVs; in 2026, Ford says it will have seven models and production capacity of 2 million EVs.
Some experts are skeptical. “There is no rule that we don’t start counting until 2025,” said Tu Le, founder of Sino Auto Insights, a consultant firm on the Chinese auto industry. “Tesla and BYD just have clearer paths because they don’t have an [internal combustion] history and a bunch of factories they need to convert.”
Father of Vertical Integration
In the beginning of the last century, Ford pioneered the auto industry and vertical integration with the Model T, a rumbling sedan whose price he kept reducing so seemingly anyone could afford one. Ford earned a profit most years because he was a control freak: He produced his own steel, iron, bronze and brass from his own mines, metals that his employees hammered, stamped and cast into bodies, frames, engines and radiators. Ford made his own glass for the safety windows in his cars and used the rubber produced on his Brazilian plantation to make tires. He owned his own limestone quarries, miles of forests and a coal mine that fueled Ford’s own power plant, not to mention freighters that carried supplies to the sprawling River Rouge, Mich., factory, and carried away the finished cars.
Ford wasn’t doing all this mindlessly: If you wanted to survive, it was necessary to keep an eye on everything, continually improve processes and relentlessly lower costs. Hundreds of rivals who didn’t follow these rules went under, their names largely lost to history, often because they could not control their costs and produced autos few could afford. John D. Rockefeller had introduced aspects of vertical integration in oil a half century earlier, but Ford brought it into its modern form. “There wouldn’t be a mass commercialized automotive industry if it didn’t start with the vertical integrated supply chain for the massmarket companies,” said Bill Russo, founder of Automobility, an auto industry consulting firm.
Neither Tesla nor BYD has taken vertical integration to Ford’s level. But batteries are the signature components for each; of the two, BYD relies less on outside suppliers. In 2020, BYD introduced the Blade, one of the world’s most innovative EV batteries. The Blade is long and slender rather than boxy like most other battery packs; it pioneered cell-to-pack design, which reduces the amount of material typically stuffed into a pack for safety reasons, thus increasing energy density. Byd could do that because it used lithium-iron-phosphate cathodes, a much safer formulation than high-nickel, the cathode of choice in most EV batteries. The Blade also cost much less per kilowatt-hour than rival batteries. It became the first of a string of competitive batteries produced in China: Until then, Chinese companies were producing commodity 18650 batteries, used mainly in laptops. The Blade demonstrated that China could innovate on the same level as, and sometimes better than, the West.
In the West, Tesla was the battery innovator. In 2016, CEO Elon Musk unveiled the 2170, a battery measuring 21 millimeters in diameter and 70 mm in length, which replaced the 18650 used in later versions of the Tesla Roadster and the Model S. The 2170 was for the new Model 3, and Musk called it “the best cell in the world that is also the cheapest cell.“ Much of the industry agreed, and others adopted it, including Rivian and Lucid Motors.
In 2020, Musk unveiled a battery that he said was even better—the 4680, measuring 46 mm in diameter and 80 mm in length, about the size of a fist. Musk said technological and manufacturing innovations would halve the cost of the company’s batteries, which were already near the industry low. It’s not clear how far Tesla has gotten in achieving those advances; the 4680 hasn’t reached volume production, but again the industry has gone with Musk’s vision. In the most recent show of flattery, BYD has reported its own version of the 4680—the 4090.
So which of the two companies is more likely to pull ahead in this race? Sam Korus, an analyst at Ark Investment Management, told me he favored Tesla because of its full self-driving technology, which despite its troubled history might eventually work—boosting the company’s shares.
I’m not convinced. I see advantage for Tesla, but not in technology—in cost. Last month, Tesla perceived soft demand and cut its prices globally; the company then reported that demand rose sharply. Because it earns more than $9,500 a vehicle in profit, it could slash prices and still make money. BYD, conversely, earns just $1,550 a vehicle in profit, and until it starts to sell more of its premium models, it has much less latitude to adjust to the market. Regardless, I see no sign that one will knock the other out of the contest.
Moving Up in the Inside Lane?
In recent months, some other automakers have understood that if they want to survive and thrive in the new era, they too will need to vertically integrate. The greatest convert to this thinking is probably General Motors. Last month, GM paid $650 million for up to a 29% share of Lithium Americas, developer of the proposed Thacker Pass lithium mine, the largest in the U.S. On his podcast, lithium expert Joe Lowry called it the largest equity investment ever by an automaker in a lithium mine. But GM was just getting started: On Thursday, The Wall Street Journal reported that GM was considering taking a 10% equity stake in nickel producer Vale. Also on Thursday, GM secured dedicated access to chipmaking capacity from a foundry in upstate New York run by GlobalFoundries.
But it is late, and Tesla and BYD’s rivals have a lot of catching up to do. Lei Xing, former chief editor of the China Auto Review, told me that Tesla and BYD’s main advantage is their capacity to produce millions of EVs, allowing them to immediately turn on production when demand arrives; no other automaker has that ability. Russo of Automobility said legacy automakers will have to unlearn the successful strategies of the combustion age. “That doesn’t mean you can’t pivot,” he said, “but if you’ve pivoted late, you’ve ceded the early mover advantage, which means you’ve ceded the supply chain advantage.”
Noteworthy
France and Germany said U.S. officials have assured them they will act to make the Inflation Reduction Act fairer to Europe. It’s not clear what they will do—the law explicitly states that its grants and tax credits are only available to companies that either build batteries in the U.S. or use material from a country that has a free-trade agreement with the U.S. The EU meets neither standard, and Sen. Joe Manchin (D-W.Va.), whose staff wrote much of the law, says he will fight to make sure the administration doesn’t insert wiggle room into the language.
China’s Contemporary Amperex Technology Ltd. is closing in on a deal with Ford to make LFP batteries in Michigan, according to the Detroit News, though Manchin told me their planned gigafactory wouldn’t qualify for subsidies.
After missing the boat on EVs, major automakers are overcorrecting, erecting the capacity by 2030 to build far more EVs than will be required for a long time, according to new data from AutoForecast Solutions.
EV and battery makers have gotten some relief the last eight months as cobalt prices have halved, a result of a drop in consumer purchases of portable electronic devices.
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About Steve LeVine
Steve LeVine is editor of The Electric. Previously, he worked at Axios, Quartz and Medium, and before that The Wall Street Journal and The New York Times. He is the author of The Powerhouse: America, China and the Great Battery War, and is on Twitter @stevelevine
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