Autos

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Imitation, as Melania Trump has learned, is the sincerest form of flattery. So BYD Chairman Wang Chuanfu should be pleased: No less a visionary than Elon Musk, founder of Tesla Motors, appears to be borrowing from the playbook of his Shenzhen-based rival.

A core plank of Musk's second master plan for the carmaker, released Wednesday night, will involve extending its electric vehicle range to "cover the major forms of terrestrial transport," a Tesla-ish way of describing trucks and buses .

The plan's heady futurology is reminiscent of an old copy of Popular Mechanics magazine, or General Motors' 1939 World's Fair exhibition:

According to Musk's blog post, the new vehicles will cut the cost of cargo transport, reduce congestion and "transition the role of bus driver to that of fleet manager." There'll even be special buttons at bus stops, so that people who don't have a phone can summon a Tesla to take them "all the way to their destination."

BYD doesn't have an ounce of Tesla's pizzazz, but in place of aspiration it has an existing record of quiet achievement. Warren Buffett saw the potential early and bought a 10 percent stake in 2008. BYD has been making electric buses since 2010 and its 10,000th model rolled off the production line in April. Last month it started the conveyors on a new factory in Qingdao that will manufacture 5,000 battery-powered buses a year, according to the China Daily. 

BYD even made a sortie into Tesla's home territory by opening an electric bus factory in the outskirts of Los Angeles. The same plant has struck a deal with the state government to build electric trucks for a test project hauling goods around California's ports.

Out in Front
2015 production of electric vehicles at top 10 manufacturers
Source: Bloomberg New Energy Finance

BYD's Qin and Tang car models don't have the oomph of the old Tesla Roadster. Nor can they match the Model S, whose autopilot mode gets the science-fiction feel just right by being both exciting and somewhat alarming. But the company isn't to be underestimated: It produced almost 50 percent more electric vehicles than Tesla in 2015, according to Bloomberg New Energy Finance data, and has a voracious home market thanks to Beijing's plans to double annual battery-powered vehicle sales to 558,000 units this year.

Tesla may be better placed to catch up to BYD's output volumes if it were able to meet its own production targets.  Though much has been made of Tesla falling behind its delivery schedule, and explained away by the company, it's actual manufacturing that matters most. There, Musk is going to have to accelerate his output to ludicrous speed over the coming months if he's to meet his goals, as Gadfly's Liam Denning has written.

Stand and Deliver
Tesla has struggled to meet recent delivery and manufacturing forecasts even as Elon Musk says the company will ramp up production
Source: Company statements
Note: 4Q 2015 manufacturing forecast was 15-17k, delivery forecast was 17k-19k. No manufacturing forecast found for 1Q 2016. No actual production figure available for 1Q 2015.

In perhaps the most baffling part of the latest master plan, Musk explains his confidence in boosting output by referring to "a first principles physics analysis of automotive production" that suggests "somewhere between a five to 10-fold improvement is achievable by version three on a roughly two-year iteration cycle." The first Model 3 factory, slated for volume production a year from now, should be thought of as version 0.5, with version 1.0 coming in 2018, Musk said.

BYD doesn't need such ambitious language because it's already doing what Tesla is planning. Want to become a major player in battery storage, as Musk expects to with Tesla's takeover of SolarCity and construction of the planned Gigafactory? Well, BYD is already the biggest player in that space, with a market share more than 10 times Tesla's.

Power Politics
Global market share of large-scale battery suppliers, 2015
Source: Bloomberg New Energy Finance

Surely the Gigafactory will leapfrog that position once it starts? After all, it's going to produce 35 gigawatt-hours of lithium-ion batteries in 2020, more than were made worldwide in 2013. Well, perhaps not: BYD is planning to hit 34GWh by the end of 2019.

Charging Ahead
Even Tesla's Gigafactory isn't likely to put it ahead of BYD in terms of battery production volumes
Source: Bloomberg New Energy Finance, Company reports
Note: Tesla production ramp-up based on assumed straight-line growth from 2017 start date to 2020 target capacity. BYD based on plan to add 6GWh/year.

Tesla has achieved remarkable things, but its habits of burning cash and skipping goals don't bode well for the challenges that lie ahead.

Those physics first principles that Musk talks about can cut both ways. "You kind of boil things down to their most fundamental truths and say 'Okay, what are we sure is true?'," he said in a 2013 interview, "and then reason up from there."

One thing investors can be sure of right now is that Tesla isn't getting its current line up of vehicles out the door on time, or making money on them.

While BYD's financial performance is as handsome as a young Dorian Gray -- delivering $1.2 billion of operating profits over the past 12 quarters -- Tesla increasingly resembles the portrait in his attic, with $1.2 billion of losses at the same level.

One of These Things Is Not Like the Other
BYD's surging operating income is the mirror image of Tesla's deepening losses
Source: Bloomberg

It's quite possible Musk will both achieve his targets and make a profit with an even broader offering. But if you boil things down to their most fundamental truths, it's looking less likely by the day. Here's a first principle for you: Automakers should be able to make money and deliver their cars on time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Let's not forget that Musk is separately backing plans for another form of terrestrial transport -- a supersonic levitating vacuum train -- plus an extraterrestrial spacecraft that's meant to reach Mars by 2018.

  2. A stated manufacturing target couldn't be found for 1Q 2016, but the company missed its delivery target and actual vehicle build was also below that delivery forecast.

To contact the authors of this story:
David Fickling in Sydney at dfickling@bloomberg.net
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net