Why Cadillac thinks Tesla got it wrong

Americans have heard a lot about electric vehicles lately, with just about every big automaker touting some kind of EV at the recent Detroit auto show. But the biggest market for EVs isn’t the United States—it’s China.

Automakers sold about 331,000 plug-in vehicles in China last year—nearly three times the U.S. total. And a strong push by the Chinese government—desperate to curb choking air pollution caused by emissions in cities such as Shanghai and Beijing—could push EV sales to 700,000 in 2016.

This matters here in the United States because U.S. automakers want to build electrics they’ll be able to sell in both markets. Tesla (TSLA) has begun exporting its Model S sedan to China, but it’s been rough going. As an import, the Model S is considerably more expensive than it would be if it were manufactured in China. Epic traffic jams in some urban areas degrade the range of a pure electric, dimming its appeal. And charging stations remain scarce in China’s vast hinterlands. Tesla has fallen well short of sales targets in China and laid off part of its in-country staff amid restructuring.

Cadillac chief Johan de Nysschen thinks he knows what the problem is: Driver worries about the limited range and long recharging times of pure electrics with no gasoline backup. Cadillac’s next electric offering in China, by contrast, will be the CT6 plug-in hybrid, which operates similar to the Chevy Volt. It will have a range of about 30 miles on electric power alone, but once that’s exhausted, a gas-powered 4-cylinder engine will drive the car, meaning the CT6 will keep moving as long as there’s gas.

“Tesla is a very interesting brand,” de Nysschen tells Yahoo Finance in the video above, “but I don’t believe there has been any car company that has made a profit on EVs. I need to be profitable so I can prioritize EVs in the future. For now, we will focus on hybrid technology.”

The gas-powered CT6 will be a full-sized premium sedan starting at around $55,000 and arriving in showrooms soon—in both the U.S. and China. The plug-in hybrid version will go on sale in both markets by the end of the year, with combined gas mileage (averaged over both the electric- and gas-powered mode) equivalent to at least 65 MPG.

General Motors will build the conventional CT6 in Michigan. But the hybrid model will be assembled in China, under a partnership GM has with Chinese auto giant SAIC. The 50-50 joint venture means GM will only get to keep half the profits on the CT6. But it should give the car a big price advantage over imports, especially since the dollar has been strong, while China seems to be deliberately devaluing its own currency, the yuan, which makes imports more expensive relative to products made at home in China.

The CT6 plug-in will be imported to the U.S. from China, but GM expects about 90% of sales to take place in China. GM’s sprawling size and global partnerships allow it to take a China-first strategy with a car it expects to be more popular there than here, just as it tailors other cars to the U.S. or European markets and builds those models close to where they’re likely to be sold.

Cadillac is in the midst of a turnaround, with its newly revamped cars earning good reviews but sales down slightly in 2015, even though overall industry sales hit a new record. De Nysschen says Cadillac may need as many as four additional models to fill out its lineup: A spacious crossover that’s between the midsized XT5 and the cavernous Escalade, one or two smaller crossovers beneath the XT5, and a compact luxury sedan. “We need to work very hard to to fill some very significant gaps,” he says.

Tesla, needless to say, is a tiny fraction of GM’s size, with just one sedan, one crossover and a single California assembly line. But CEO Elon Musk says Tesla, too, hopes to build its cars in China within a few years. Musk also says Tesla expects to turn its first annual profit around 2020, which seems to be just fine with investors and shareholders who credit the upstart automaker with building remarkable cars that never could have come from a Detroit conference room. When Tesla is more than a century old, as Cadillac is, it may know better than its rivals, too.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.