Tesla trumps BYD in China sales efficiency with real-time strategy

SHANGHAI (Reuters) – Tesla (NASDAQ:)’s strategy in China of real-time, aggressive management of its sales staff is giving its stores an edge over dealerships offering BYD (SZ:) and other brands in the world’s largest auto market, according to three people with knowledge of the matter.

The U.S. company in the fourth quarter lost its crown as the world’s biggest electric vehicle seller to China’s BYD, but during the first 10 months of 2023 both companies grew their share of a slowing and highly competitive Chinese EV market.

Tesla sold more than 1,500 EVs in each of its Chinese stores on average in the first 10 months of 2023, up from 1,300 in 2022, data from China Merchants Bank International (CMBI) showed.

BYD in comparison sold under 600 cars per store in the same 2023 period including plug-in hybrids, similar to its 2022 performance, although overall it sold far more EVs than Tesla given its best-selling models cost half as much and it has 11 times as many local distributors.

“Tesla may have more throughput per store, but their growth is limited, especially when compared with BYD,” said Bill Russo, CEO of Shanghai-based advisory firm Automobility.

Tesla’s China EV market share grew to 12% in the first 10 months of 2023, up from 10% in 2022, while BYD’s share rose to 27% from 21% over the same period as its lower-end rivals stumbled, according to data from Automobility and the China Passenger Car Association.

Tesla’s solid sales performance in China, its second-biggest market, provides a rare bright spot for the EV maker, which has warned of the impact of high interest rates on car buyers in other key markets like the U.S. and slowed plans to construct a factory in Mexico.

The automaker, which pioneered a direct sales model worldwide, monitors its 2,800 sales staff across its 314 stores in China on an hourly basis, assessing how effective and efficient they are in persuading potential consumers to visit stores, arrange test drives and place orders, the three people said.

They declined to be identified because such information about its China sales strategy, which has not been previously reported, is deemed confidential. Tesla did not respond to a request for comment.

The people said this real-time collection of data informs the company’s pricing strategy, which allows it to influence demand for some model versions and resulted in seven price hikes and three cuts in China last year. The company can then make cost-effective production plans based on raw material prices and supplies.

It manages its staff similarly to Chinese food delivery giant Meituan, which measures delivery times by the minute and second, one of the people said.

Tesla salespeople seen to have failed to be active enough have been let go the same day, the person added.

The company incentivises its staff by offering a base salary higher than EV rivals and allowing the best performers to earn up to 30,000 yuan ($4,203.56) a month including bonuses, drawing workers from industries such as English tutoring and insurance known for aggressive sales tactics, the people said.

OTHER SALES MODELS

BYD takes a more conventional approach to dealerships with its 3,400 stores and sells plug-in hybrids alongside battery EVs. It promised dealers up to 2 billion yuan ($279.52 million) in rewards to reach a 3 million unit global sales target in 2023.

BYD did not respond to a request to provide further details.

Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight, said Tesla’s success with its cost-effective and efficient direct sales model was not easily copied given its leadership in products, technology and reputation.

The U.S. automaker’s smaller EV rival Xpeng (NYSE:) has been rejigging its sales strategy after initially following Tesla into launching direct sales networks.

But as Tesla’s model lineup ages, it remains unclear whether it will be able to sustain its selling efficiency, especially as it enters lower-tier cities and towns where Chinese brands have a bigger presence with dealers, Zhang said.

In 2022, Tesla closed a Beijing store that had been its flagship showroom in China. It also shut four stores in Guangzhou in the final quarter of 2023.

It has been expanding in second-tier cities like Chengdu and Tianjin, where per-store vehicle sales average 163 per month, according to CMBI, higher than that in first-tier and third-tier cities. Tesla opened about 30 new stores in second-tier cities in 2023, a nearly 20% increase.

STIFFENING COMPETITION

While Tesla has pulled ahead of rivals in sales efficiency, analysts have cautioned it faces growing headwinds amid stiffening competition.

“Boasting about efficiency is a way of building up a smokescreen to explain away the fact that they’re not growing at the rate of some of their competitors,” Automobility’s Russo said.

Any attempt by Tesla to catch up with BYD in overall sales will be affected by production capacity constraints at its Shanghai factory, its biggest globally that is capable of making 1.1 million cars a year.

Tesla has signalled it wants to expand the plant but the plan still hinges on approvals from Chinese regulators reluctant to add new EV production facilities amid a capacity glut.

The company plans to expand its Berlin factory and build a new plant in Mexico. But BYD has been far more aggressive, having built EV factories in nine cities in China with an annual capacity of more than 4 million units and adding plants overseas.

Tesla’s global capacity was 2 million vehicles a year, its global production chief Tom Zhu said last March.

CMBI analysts predict the growing gap with BYD could force Tesla to further focus on margin improvement in 2024, with price hikes on revamped models and additional expansion into lower-tier Chinese cities, even as its rivals scramble to price their new EVs lower.

($1 = 7.1368 renminbi)