THE WAR ON COST: TESLA vs CHINA

|s Elon Musk sleepwalking into something that business schools label ‘the innovator’s dilemma’? First identified by academic Clayton Christensen, it’s the process where an arch disruptor innovates so successfully that it wins plaudits, market share and profits by identifying a new market – only to then stagnate as the new kid on the block becomes the norm and is itself targeted by the next wave of entrepreneurs.

Many successful companies fall prey to the dilemma as they mature, lose focus and forget agility: think Nokia or Kodak. Could the same thing happen to Tesla? Probably not any time soon, if plans for the Model 2 come good. But there’s one business opponent that’s hellbent on exploiting Tesla’s maturation – and it’s China’s burgeoning electric-car sector.

Research giant Gartner forecasts that half of the world’s EVs will hail from China by the end of next year, up from a quarter in the first half of 2022. ‘This will imply a significant reduction in sales by incumbent leaders, particularly in China, as people will shift from petrol- and diesel-fuelled vehicles built by the incumbents to Chinese-made EVs,’ its analysts note.

Thanks to a long-term industrial strategy funded by the communist government, China has cornered the supply of raw materials and production of the batteries required for electrification: 70 per cent of global battery cell manufacturing takes place in China, and BloombergNEF’s annual lithium-ion battery price survey suggests that the country’s production cost of $126 per kWh undercuts production costs in the US by 11 per cent and Europe by 20 per cent. |t’s a stark reminder that geopolitics, trade deals and imperial strategy have been deliberately aligned to secure China’s competitive advantage.

|t’s an endless game of cat and mouse, as manufacturers from east and west seek an edge. Automotive consultancy Bernstein observes that Chinese newcomers are watching technical innovations, especially around injection moulding, battery integration and integrated stamping, to mimic the very latest production practices from the likes of Tesla and the German premium brands: ‘Chinese competitors have adopted a “fast follower” strategy and are looking to quickly replicate Tesla’s best practices, including both production and design.’

What does all this mean? At the time of writing, four of the 10 cheapest electric cars on sale in the UK today are from Chinese producers. Sobering when you realise that these first cars are merely the warm-up act.