Tesla, the innovator of Electric Vehicles, outshines BYD in the China with its real-time strategy, and aggressive management of the sales force. This strategy is giving Tesla stores an edge over its rival BYD and other automakers who offer dealerships in the world’s largest auto market.
Even though Tesla lost its crown as the largest EV maker to BYD in the fourth quarter, both the rival companies continued to grow their share in the slowing and highly competitive market of China in the first 10 months of 2023.
According to the data released by the China Merchants Bank International (CMBI), Tesla managed to sell more than 1,500 vehicles from each of its stores in China in the first 10 months of 2023, slightly higher than 1,300 vehicles sold in the previous year.
Compared to it, BYD managed to sell even less than 600 vehicles per store in the same period in 2023, almost similar to its performance in the previous year. Although, it sold far more EVs than Tesla, because of low cost models and 11 times as many local distributors as Tesla.
Bill Russo, the CEO of Shanghai-based advisory firm Automobility views this situation as, “Tesla having more throughput per store, but their growth staying limited, especially when compared with BYD.”
Tesla’s market share in the Chinese EV market grew slightly in 2023 from 10% to 12% in the first 10 months of the year, while its rival managed to increase the share by a whopping 6% to reach 27% of the pie.
The solid sales performance of Tesla in its second-largest market, provides it a bright opportunity to mitigate the impact of high interest rates in other markets like the US and a slowing demand in Mexico.
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The Real-time Strategy
Tesla is the pioneer of the direct sales model in the automobile in EV industry, this also formed the foundation of its real-time strategy which resultantly it outshines its rival BYD in China. Under this strategy, it monitors 2,800 of its sales staff in 314 stores across China on an hourly basis, allowing it to assess the efficiency and effectiveness of their persuasion skills in front of new customers, placing orders and arranging test drives for them.
The people who reported this strategy to Reuters, declined to be identified as this part of their sales strategy in china has not been reported anywhere previously, thus maintaining its confidential nature.
The people noted that collecting data in real-time helps Tesla to make instantaneous decisions on its pricing strategy, and allows it to influence demand for some versions of the models. The company can then make cost-effective plans for production on the basis of raw material and supplies cost.
The people noted that the staff in Tesla stores are less effective and fail to remain active if they are alone on their will. Moreover, the company incentivizes its staff by offering them a base salary higher than its competitors and a monthly bonus of up to 30,000 yuan ($4,203.56), attracting sales men from insurance industries who are known for their aggressive sales tactics.
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Alternative Sales Models
Opposed to Tesla, BYD takes a more conventional sales approach of managing sales through dealers with a network of more than 3,400 stores across China. It also promised dealers an upwards of 2 billion yuan ($279.52 million) in rewards on reaching the 3 million units target in 2023.
One of Tesla’s smaller rivals, Xpeng earlier tried to copy its direct sales model, however it is rethinking and restrategizing on other forms of sales approaches after failing to achieve results.
Yale Zhang, the Managing Director at Automotive Foresight, said that till date no other company has successfully been able to copy the direct sales model implemented by Tesla, due to its leadership in technology, high-tech products and its reputation.
However, as the model lineup has started to age, it remains unclear whether Tesla will be able to sustain its sales strategy, especially entering into the low-tier cities and towns where Chinese brands have a dominant presence due to the low prices and availability.
Though, it has been expanding in the second-tier cities like Tinajin and Chengdu, average per-store sales at 163 vehicles, and opened up 30 new stores in second-tier cities of China.
While Tesla has pulled well against its competitors in sales efficiency, analysts are continuously cautioning about the growing challenges it is yet to face amid a slowing demand and stiffening competition in China.
Automobility’s Russo said that, “boasting about efficiency is a way of projecting up a smokescreen to explain away the fact that they’re not growing at the rate of some of their competitors.”
Analysts are predicting that BYD might force Tesla to focus on its margins in 2024, and price hiking on revamped models and expansion into third-tier cities of China.
($1 = 7.1368 Chinese yuan renminbi)
