How China’s BYD played catch-up with Tesla

After three years as the world’s most popular maker of battery-powered cars, Tesla was this week forced to hand back that crown to one of the industry’s least known yet most feared brands: China’s BYD.

Half year sales figures published on Tuesday showed that BYD — short for “build your dreams” — delivered 641,000 cars in six months, 300 per cent higher than the year before and ahead of Tesla’s 564,000.

In doing so, it managed to overtake Tesla before Volkswagen, Ford or General Motors, each of which had made this a public goal.

“BYD has very good prospects,” said a senior executive at a German car manufacturer.

“They are looking increasingly like the Toyota of China’s electric vehicle industry,” said Michael Dunne, a former GM executive and China industry expert.

High levels of vertical integration — it has its own battery and energy storage divisions and a computer chip unit, a background in battery making, and a good deal of patience have all made the group a formidable up and coming competitor in the global car industry.

But while Tesla has worldwide recognition, BYD is little known for now in international markets.

In the rest of the industry, executives recognise it is only a matter of time before this changes and China becomes a big deal in the global electric vehicle market.

“There’s just a lot of super talented and hardworking people in China that strongly believe in manufacturing,” Tesla chief executive Elon Musk told an FT conference in May. “And they won’t just be burning the midnight oil; they’ll be burning the 3am oil.”

Westerners don’t know how far ahead BYD is from the rest

Among the Chinese companies that are hoping to use the transition to electric vehicles to catapult themselves to global significance, BYD is unique.

Unlike many of the country’s other established manufacturers, such as FAW and SAIC, it is not state owned. It is listed in Hong Kong and also has significant private backers including Warren Buffett’s Berkshire Hathaway, which bought a stake in 2008 and now owns about 8 per cent of the company.

Founded by former university professor Wang Chuanfu in the mid-1990s, it started out as a manufacturer of rechargeable batteries before expanding into the car industry in the early 2000s.

Like other manufacturers in the region, including South Korea’s Hyundai, the group initially developed its business by “reverse engineering” cars from established brands, before developing its own models.

About half the cars currently sold by BYD are plug-in hybrids that China counts as “new energy vehicles” alongside pure battery and hydrogen powered models. Other types of hybrids, such as the “full hybrid” models of the Toyota Prius, are not classed in China as NEVs because they cannot travel long distances on battery power alone.

Despite Beijing’s classification of plug-in hybrids as NEVs, environmental campaigners have long argued that they should not be designated as clean vehicles because they also have traditional engines and are only emission free when running on battery power alone.

One reason BYD has overtaken Tesla on sales is pure luck. Shanghai, the location of Tesla’s biggest factory in China, was locked down for two months.

Data provider EV-volumes estimated the lockdown cost Tesla between 80,000 and 100,000 vehicles. BYD, however, was less affected because most of its production is in the southern Shenzhen region.

However, this stroke of good fortune bestowed by geography belies BYD’s longer-term advance as a serious competitor not only to Tesla, but carmakers round the world.

While it has not been without setbacks, the company is being investigated by authorities in China about the effects of harmful pollutants used in paint, BYD’s breadth of in-house expertise, particularly in batteries, has been key.

“They used to be a battery company that incidentally had a hand in making cars, but have now begun to blossom,” said Dunne.

“It helps that they make the batteries. Who owns the batteries owns the crucial supply chain, and BYD is way out in front in that regard.”

According to Bernstein research, BYD now has about 10 per cent of global capacity for EV battery production.

Its current 80 gigawatt-hours of battery plant capacity is twice what it had in 2019, and it is expected to reach 185 gigawatt hours by 2025.

Critically it, and local rival CATL, are among the most competitive battery producers in the world with their scale and technology underpinning lower costs.

“It gives them flexibility, they are always first in line for battery and chip supply, and it makes it easier to control costs,” said Tu Le, managing director of advisory group Sino Auto Insights.

“They are running rings around the competition,” he said. “I think a lot of westerners don’t know how far ahead BYD is from the rest.” 

If they do not know now, BYD has plans to change that.

While its sales are heavily concentrated in its domestic market, with only 3,300 BYD vehicles exported in the first five months of 2022, it has significant international ambitions.

It already sells electric buses in Europe, Japan and India, and is taking steps to launch car models in Europe, Australia, Latin America and the Philippines.

This week, it signed a deal with Netherlands car dealership Louwman for its first European launch. It has also been signing up dealerships in south-east Asia, particularly in Thailand, offering dealers a higher share of profits than other brands, according to people with knowledge of the details.

Adaptability has also been an important part of BYD’s success

Founder Wang, who is one of the 100 richest people in the world with a personal fortune of $25.4bn, according to Forbes, has branched into other areas, including making solar cells and cell phone assembly.

Tu Le said that BYD’s manufacturing prowess was illustrated early in the pandemic when it rapidly developed a division to make face masks.

“They are operationally efficient . . . They went from zero, to being one of the largest mask suppliers in the world in less than five months,” he said.

BYD is also staunchly in the mass market. Its cheapest car model is $15,000, against Tesla’s $35,000 Model 3.

At the same time, Tesla itself appears to have reduced its long-term ambitions.

This year, Musk said the group’s goal to sell 20mn cars a year by 2030, which would have made it larger than VW and Toyota, the world’s first and second-largest car sellers, combined, was an “aspiration” rather than a fixed target.

And while BYD has serious competition from elsewhere, Volkswagen is investing €52bn in electric cars and has a lower priced model due from its MEB electric stable and start-ups like Fisker are specifically targeting the lower priced end of the market, it seems safe to bet that it will become a more familiar name to consumers outside China in the not too distant future.

Additional reporting by Gloria Li in Hong Kong