Abstract

By 2024, China-based BYD had become the largest electric vehicle company in the world, surpassing US-based Tesla. Its rapid rise in China and in the global market was attributed to its technological capabilities, vertical integration, and related cost efficiencies. BYD’s success in China was also considered to be due to the support and policies of the Chinese government. The Chinese government also lent its support to US-based electric vehicle manufacturer Tesla. The company established its Gigafactory in Shanghai in 2019. This was the first foreign-owned car manufacturing plant in China and it became a manufacturing hub for Tesla’s vehicles. Vehicles from this factory catered to the needs of the Chinese market and were also exported to several countries across the world. Tesla went on to become one of the major players in the Chinese EV market. However, it faced growing competition from BYD. With its localized supply chain and pricing and product portfolio catering to the needs of the Chinese, BYD soon became a top player in the market. While Tesla continued to leverage its technological leadership with increasing investments in R&D, it faced challenges due to growing domestic competition, changing consumer preferences, and government policies that favored local players. This case examines the evolving rivalry between BYD and Tesla in China, focusing on how industrial policy, innovation models, and supply chain strategies influence competitive advantage. It raises a central question: in China’s EV market, will local scale and policy alignment outweigh global brand and technological leadership?

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Identify how value-chains create a competitive advantage.
• Elaborate on the benefits companies can derive from vertical integration
• Assess the rationale behind aggressive price reductions and analyze how to prevent a “race to the bottom” in the long run
• Establish an action plan for each company that can be defended (tariffs, geopolitics, demand changes, tech disruption).

Keywords

BYD; Tesla; Vertical Integration; Battery Technology; Supply Chain Control; Cost Leadership; Product Differentiation; Price War; Economies of Scale; Government Subsidies; Innovation Strategy; Competitive Advantage