Summary:

When Tesla came to town, what happened to other Chinese EV makers? The answer: Chinese EV stock prices surged 6 months after Tesla started production in China. What are the possible narratives?

We collected stock prices of Chinese EV exporters which include joint ventures like Brilliance BMW and Wuling GM, as well as local brands such as BYD and NIO. We found that Tesla’s stock prices began to spike just before its Gigafactory Shanghai started production in Dec 2019, leading to a dramatic tenfold increase within a year. This rapid ascent even prompted jokes about Tesla producing Batmobiles in Shanghai. However, Tesla’s surge preceded that of its Chinese counterparts, whose stocks only started to climb about six months later in Aug 2020. The overall increase in China’s EV exports did not begin until late 2020.

What are some possible narratives? First, Tesla, a symbol of American genius and inventiveness, could have cultivated local Chinese suppliers which benefited other EV makers. As part of the Shanghai-Tesla deal, it committed to localizing 100% of the supply chain, including batteries (CATL), LCDs (Changxin), cameras (Yak Tech), precision parts (Xusheng), suspensions (Tuopu), magnets (Hengdian) and so on, all located in the nearby Yangtze Delta cluster. Turbocharged by Tesla’s massive orders, these suppliers achieved economies of scale and improved product quality, which in turn benefited Chinese EV makers downstream.

This is similar to Apple, who would send engineers to enhance the production quality of their Chinese suppliers and provide generous financial assistance. As a result, other Chinese smartphone makers became highly competitive, as they too could access the top-notch supply chain built by Apple. A natural question arises: Is this sustainable for innovators like Apple and Tesla? What are the differences between these two cases?

The second possibility is that Tesla’s meteoric rise may not have been so quick without leveraging China’s phenomenal scale and efficiency in manufacturing. The entire EV ecosystem in China may have already been developing in the background for years. Though critics would attribute Chinese manufacturing prowess to overcapacity and forced technology transfer. We will refrain from evaluating these arguments without careful quantitative analysis.

Lastly, the arrival of Tesla may have been pro-competitive and prompted Chinese companies to innovate. One example would be BYD’s blade battery launched in March 2020, which made BYD a formidable competitor of Tesla. Eventually, Tesla even started to use BYD’s blade battery in its own EVs from 2022.

What can #ASEAN learn from these narratives? Key takeaways include the importance of engaging star players to cultivate an ecosystem, regional integration to achieve scale and efficiency, and sustainable trade relationships in an interdependent world.

Highlights:

• Tesla’s Gigafactory Shanghai launch in December 2019 precipitated a dramatic tenfold increase in its stock price and was followed by a significant surge in Chinese EV stocks six months later.
• Tesla’s commitment to localizing 100% of its supply chain in China, including partnerships with companies like CATL and Yak Tech, not only boosted its operations but also enhanced the capabilities of local Chinese EV manufacturers.
• BYD’s innovation of the blade battery in March 2020, which was later adopted by Tesla, exemplifies how Tesla’s entry into the Chinese market has spurred local innovations due to pro-competitive effects.

Article By YI, Xin

Graphic By BALAJI, Akshaya