Friday, December 1, 2023

Competitors Turn Partners: Exploring Tesla and BYD’s Collaboration

BusinessCompetitors Turn Partners: Exploring Tesla and BYD’s Collaboration

Tesla, the world’s leading electric vehicle (EV) manufacturer, has announced its collaboration with BYD, a leading player in the EV and battery industry. The partnership involves Tesla incorporating BYD’s lithium iron phosphate (LFP) blade batteries into the rear-wheel-drive entry-level version of the Model Y, which will be produced at Tesla’s Berlin factory in Germany. Deliveries of this model are slated to commence in June 2023. Let’s delve into the significance of this collaboration from the perspectives of both Tesla and BYD.

Tesla’s Perspective

Tesla’s Berlin factory has thus far been responsible for manufacturing the premium variant of the Model Y, equipped with Panasonic’s 21700 lithium-ion batteries. In contrast, the entry-level version of the Model Y had been imported from Tesla’s Gigafactory in Shanghai, China, with CATL’s LFP batteries installed.

With this collaboration, Tesla will now produce the entry-level Model Y directly at its Berlin factory, integrating BYD’s LFP blade batteries with a capacity of 55 kWh. This battery configuration will offer an approximate range of 440 kilometers. Although this variant features a reduced capacity of 5 kWh compared to the CATL battery-equipped Model Y, the BYD LFP blade batteries boast improved energy density. This enhancement results in an increased range per kilowatt-hour, from 7.6 km/kWh to 8 km/kWh.

Additionally, the adoption of BYD’s blade batteries provides Tesla with cost advantages. The blade batteries employ cobalt- and nickel-free battery materials, which are more affordable. Consequently, Tesla stands to save approximately $750 in battery pack costs when considering a battery cost of $150 per kilowatt-hour. Moreover, the square-shaped design of the blade batteries enables tighter and more efficient packaging, leading to higher energy density. This design also facilitates Tesla’s integration of Cell to Chassis (CTC) technology, which reduces packaging material usage and overall costs.

Considering these factors, the decision to utilize BYD’s blade batteries aligns with the cost-effective preferences of the entry-level Model Y’s target consumer group while fulfilling Elon Musk’s commitment to cost control.

BYD’s Perspective

In 2022, BYD overtook Tesla as the world’s largest EV manufacturer, boasting sales of 1.86 million electric vehicles. As a result, BYD’s market share in battery assembly has steadily increased, owing to its self-supply capabilities. As of the first quarter of 2023, BYD stands as the second-largest global supplier of power batteries, with a market share of 16.2%, surpassed only by CATL’s 35%.

Despite BYD’s remarkable growth in the electric vehicle sector, its battery production capacity initially struggled to keep pace. This resulted in a period during which BYD could only fulfill its own demand and was unable to export batteries, impeding the growth of its battery business in terms of customer quantity.

Apart from its use in BYD’s own EVs and the recent collaboration with Tesla for the Model Y, BYD’s batteries primarily find application in Changan Ford vehicles. Furthermore, a staggering 98% of BYD’s electric vehicle sales currently originate from the domestic Chinese market. This high market concentration poses the dual risks of relying excessively on a single market and a single customer for battery sales.

BYD’s inclusion in Tesla’s supply chain with its blade batteries marks a significant step toward diversifying sales risks. Nevertheless, for BYD to maintain its position as the second-largest battery supplier in the future, the company will need to adopt a proactive and diversified market strategy, expanding its presence in the supply chains of various automakers.

EV manufacturers and their battery suppliers
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