"Tesla's Secret Weapon Revealed: Why Chinese Manufacturers Can't Compete!"

  Electric car manufacturer from the United States (US) Tesla Inc. is considered to still hold the throne of the most innovative automotive company based on the 2024 Future Readiness Indicator (FRI/ Future Readiness Indicator) survey released by The International Institute of Management and Development (IMD) today.

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However, Tesla1's position is trailed by BYD Co. Ltd. from China in second place, followed by Volkswagen AG from Germany in third place, Stellantis NV from the Netherlands in fourth, and Hyundai Motor Co. Ltd from South Korea is in fifth place.

The FRI 2024 annual indicator measures the future resilience of 24 global automotive companies. This indicator sorts the rankings based on the level of innovation carried out by the company to meet customer needs.

“Future Readiness Indicators always move dynamically. A company's lower ranking on the list does not mean that the company is not innovative. "Their innovation was not fast enough, so it was taken over by competitors," explained Howard Yu, Director of the IMD Center for Future Readiness.

Yu took the example of what happened to Toyota, whose ranking continued to decline from second place in 2022, to 10th in 2023, and is now in 11th position. Toyota's position was then overtaken by BYD, Neo and Lee Auto from China.

“Why is Toyota's ranking falling? "It's not that they haven't made preparations for electric vehicles, but that their innovation is not moving as fast as their Chinese competitors," added Yu.

Tesla managed to maintain its position at the top with a score of 100 in 2023 and 2024. However, this company must be vigilant because its competitors continue to close their positions. For example Chinese EV giant BYD continues to improve their competitiveness score from 74.7 in 2023 to 78.20 this year. Plus, in Q3 2023, BYD's sales will surpass Tesla for the first time. Although ultimately Tesla's electric vehicle sales returned to excellence in Q1 2024. This shows that Tesla's dominance is under threat.

“The most surprising finding was how Tesla's supremacy in the electric car industry was quickly overtaken. "Tesla is still number one, but the difference in score with those ranked below it is getting smaller," he said.

Yu revealed that Chinese manufacturers will control a third of the global EV car market by 2030, due to competitive prices and aggressive innovation. Moreover, other Chinese car manufacturers, such as Geely (42.34), Nio (31.30), and Li Auto (64.37), indeed sell their electric vehicles at affordable prices. This move gives Chinese electric car manufacturers a competitive advantage and poses a serious threat to European car manufacturers.

Seeing China's increasingly aggressive dominance in the electric vehicle industry with low price tags, recently United States President Joe Biden announced a 100% tax rate. This tariff was imposed to protect electric car manufacturers from the United States from attacks by imported electric vehicles from China.

Responding to this situation, Yu said that in the future Chinese electric car manufacturers would implement a white-label system to get around this tariff regulation. Similar to the “Intel Inside” strategy where laptop manufacturers use Intel processors without assembling their own CPUs.

Chinese manufacturers will sell their components, batteries, technology or semiconductors. Currently BYD has also supplied chipsets from their semiconductor factories to Fiat and Toyota in China. So, it is likely that something similar will be applied to other countries including the US

“In this way, the margin obtained can be greater. For example, no manufacturer makes money from pre-assembled air conditioners. The largest income is in compressor manufacturers. It's the same with PCs: building PCs doesn't make more money than those selling chipsets and software. So, I think the car industry is moving in the same direction," he explained.

BYD and other Chinese electric vehicle manufacturers have recently been aggressively exporting to a number of markets in Southeast Asia, including Indonesia. This step was taken by Chinese electric car manufacturers to channel excess production capacity to the Chinese domestic market.

To strengthen Indonesia's position as Southeast Asia's EV manufacturing center, Yu suggested a number of steps.

First, develop policies, regulations and incentives to support the adoption and manufacturing of electric vehicles, for example in the form of tax exemptions, subsidies, charging infrastructure and local content requirements.

Second, focus on providing electricity to public transportation (buses, 2-wheeled vehicles, 3-wheeled vehicles) and commercial fleets, because it is more cost effective.

Third, attract foreign investment and collaboration for electric vehicle manufacturing, battery production and mineral processing.

Fourth, take advantage of Indonesia's large nickel reserves by offering incentives. By providing tax breaks and subsidies to electric vehicle and battery makers, it is hoped that they can increase downstream processing and manufacturing capabilities for batteries and electric vehicles. So, it can compete with China, South Korea and Japan, which have superior battery technology and manufacturing.

And, the five are working with other Southeast Asian countries to align electric vehicle standards, incentives and infrastructure to create regional markets and supply chains.

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