[Answer] Tesla Slashes Prices by RMB 37,000 in One Go — How Should BYD Respond?

[Answer] Tesla Slashes Prices by RMB 37,000 in One Go — How Should BYD Respond?

Which comes first, the business or the business model? It is a bit like the chicken-and-egg problem.

Most businesses grow naturally. They start small, encounter the right opportunities, and continue expanding. In the process of growing larger, they gradually develop a strategy and a business model. Giants like BYD, Alibaba, and Tencent all grew in roughly this way. BYD began with batteries, Alibaba started with a website, and Tencent began by imitating ICQ. None of them, at the very beginning, had the kind of long-range vision to clearly see what they should become ten or twenty years later. But as they expanded, they gradually turned into massive business empires with their own strategies and operating models.

Another type of company is the exact opposite: first comes the business model, and only then comes the company itself. Founders first analyze technical and commercial feasibility, and only afterward begin building their business empire. Baidu was like this, even though its model was inspired by Google. Amazon was also like this. Before Amazon was founded, there was already the economic idea of the long tail; Bezos started from that theory, envisioned a virtual online store, and only then created Amazon. Today, this pattern is even more common among startups: first use the business model and the story to persuade investors, and only then start the business. Tesla was born under this logic as well. From this perspective, Tesla and BYD are fundamentally different companies and not really comparable.

Next, let’s talk about Tesla’s strategy and business model. I did not review my old materials before writing this, so I am going from memory and may not be fully accurate. Broadly speaking, before Tesla was founded, Musk’s plan seems to have had three steps:

• Step one: build brand momentum through a high-end strategy while completing product development. In its earliest stage, Tesla did not have large-scale manufacturing capacity, and its production processes were not mature enough. It could not afford the losses that large-scale defects in mass production would bring. So early Tesla was more like a big toy for wealthy users willing to try something new. Through this small-batch, premium-production model, Tesla on the one hand created a high-end brand image, and on the other hand kept improving its products in technology, design, and other areas. At the same time, premium pricing also helped offset early R&D investment to some extent.

• Step two: achieve mass production. After the first stage, Tesla moved toward large-scale manufacturing and the production of more affordable vehicles. The high-end market is limited, after all, and it was never Tesla’s ultimate goal. The real direction was mass-market new energy vehicles that ordinary consumers could afford. So, building on the accumulation from the first stage, Tesla began in the second stage to construct factories on a large scale and pursue mass production. Up to now, this strategy has been successful, and it has pushed Tesla into the third stage.

• Step three: produce low-cost new energy vehicles. I do not know whether Musk personally has any universalist ideals, but Tesla’s business model objectively does have a kind of broad social significance. After achieving large-scale mass production, Tesla’s next stage is to use technological innovation to produce even cheaper new energy vehicles. Not long ago, Tesla removed ultrasonic sensors from its cars. We have reason to believe that in the future Tesla will remove even more components, and gradually strip away the “high-end” aura as well, because that was never really its mission to begin with. The transition from a toy for the rich to an everyday vehicle for the general public is built into Tesla’s business model. A strategy like this creates brand momentum; even if Tesla one day becomes just an ordinary mass-market car, the halo that once surrounded the brand will not disappear easily.

By contrast, BYD’s brand development is more like climbing uphill under heavy weight. It has to shake off the old image of being cheap and low-end, and that is a long and difficult road.