Why Tesla should be worried about Chinese Wanxiang

Every now and then an industry boils down to a fight between two guys. Think Steve Jobs versus Bill Gates in personal computers. Or Juan Trippe versus Howard Hughes in airplanes. Or William Hearst versus Joseph Pulitzer in newspapers. In each case, the industry became defined by a personal rivalry between two hyper-aggressive individuals.

Looking at the electric car industry today, we might be seeing a similar situation. Electric cars are a massive new market and two billionaire iconoclasts – Elon Musk of Tesla and Lu Guanqiu of Chinese Wanxiang – are emerging as its leaders.

On one side, you have Elon Musk, founder of Tesla Motors, serial entrepreneur, billionaire and all-around technology visionary. His string of startling projects have included electric cars, rocket ships, PayPal and even a “hyper loop” that can transport people 10 times faster than the fastest trains. In electric cars, his company Tesla Motors is arguably the technology leader. His first electric car, the Tesla Roadster, went into production in 2008. And his second car, the Model S, hit the market in 2012-2013.

On the other side, you have Lu Guanqiu, billionaire and founder of China’s largest auto parts company Wanxiang. Lu is the quintessential self-made man. He was born into a peasant family. He dropped out of school at 15 and became an ironsmith. And after years of gathering scrap metal, he founded a small company with US$500 that would eventually become one of China’s most valuable companies. Today, Wanxiang is dominant in auto parts in China but has also expanded into agricultural engineering, bridge and road construction, hotel management, financial services, and power plant construction. It has over 40,000 employees and over US$16 billion in revenue.

Lu is also intensely focused on electric cars. In the last two years, he has acquired both American Lithium-battery maker A123 and American electric car company Fisker Auto. He has also begun manufacturing electric trucks in China and Wanxiang already has over 3,000 employees in the US, about the same as Tesla Motors. He made headlines recently with his proclamation, “I’ll put every cent that Wanxiang earns into making electric vehicles. I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”

So we have two iconoclast billionaires both focused on electric cars. And it is geography that is turning this into a mano-a-mano fight. Lu Guanqiu is aggressively going west, to capture technology and the US market. And Elon Musk is going east, to capture the China market. Because whoever is going to win will need both geographies. America is the key to electric car technology. But China’s large population and pollution problems make it the future of the electric car market.

So Lu and Musk both have basically the same strategy. Build electric cars with Western technology, deploy them initially in the West and then expand into China. Tesla has recently received its first China licence and is attempting to put electric charging stations across the country. Lu, in contrast, already has a dominant operating platform in Chinese auto and is attempting to assemble an electric car company through Western acquisitions.

And here is why Tesla should be worried about Wanxiang (the point of the article at last). Because while they both have the same strategy, Wanxiang’s path is a lot easier than Tesla’s.

Acquiring Western companies is not difficult, especially if you are already a massive conglomerate. However, entering a strategic Chinese industry as a foreigner is exceptionally difficult. You could point to the success of foreign automakers such as GM and Volkswagen in China. They have been increasing their market share recently, mostly at the expense of Chinese automakers. However, Chinese automakers are thirty years behind the technology and operational depth of companies like GM and Volkswagen. That is not the case with electric cars where leaders such as Tesla are at best five years ahead. A foreign electric car maker entering China is going to have few advantages and lots of disadvantages. Especially against an incumbent with the operational scale of Wanxiang. There are few companies that have succeeded in what Tesla is attempting in China.

Overall, the Tesla versus Wanxiang fight is going to be highly entertaining. Both Lu and Musk are visionaries who are already leaders in their industries. They both have long track records of success in hyper-competitive industries. They are both very, very smart. And they are both at the top of their game. So this rivalry should be great for consumers, and pretty fun to watch.

You can read more about the fight for Chinese consumers in my #1 best-seller the One Hour China Book. Now available on Amazon for the price of a medium latte (www.onehourchina.com)