How China built BYD, its Tesla competitor – 02/13/2024 – Market

How China built BYD, its Tesla competitor – 02/13/2024 – Market

China’s BYD was a battery maker trying to build cars when it showed its latest model in 2007. American executives at the Guangzhou auto show gaped at the car’s uneven purple paint and the poor fit of its doors.

“They were the laughingstock of the industry,” said Michael Dunne, an analyst on China’s auto industry.

No one is laughing at BYD right now.

The company surpassed Tesla in worldwide sales of all-electric cars at the end of last year. BYD is building assembly lines in Brazil, Hungary, Thailand and Uzbekistan and preparing to do the same in Indonesia and Mexico. It is rapidly expanding exports to Europe. And the company is about to overtake the Volkswagen Group, which includes Audi, as the market leader in China.

BYD’s sales, more than 80% of them in China, have grown by about 1 million cars in the past two years. The last automaker to achieve this, even in a single year, in the American market was General Motors — and that was in 1946, after GM suspended sales of passenger cars for the previous four years because of World War II. .

“BYD’s growth is unlike anything the industry has seen in many decades,” said Matt Anderson, transportation curator at the Henry Ford Museum in Dearborn, Michigan.

Based in Shenzhen, the center of China’s electronics industry, BYD has shown how Chinese automakers can take advantage of the country’s dominance in electrical products. No company has benefited more from China’s adoption of battery-electric cars and gasoline-electric plug-in hybrid cars. These vehicles together represent 40% of China’s automobile market, the largest in the world, and are expected to account for more than 50% next year. Like most Chinese automakers, BYD does not sell its cars in the United States due to Donald Trump-era tariffs, but BYD sells buses in the United States.

BYD is leading the expansion of Chinese electric car exports and is rapidly building the world’s largest car-carrying ships. The first of the ships, the BYD Explorer No. 1, is on its maiden voyage from Shenzhen with 5,000 electric cars on board and is expected to arrive in the Netherlands by February 21.

With success came more scrutiny.

Tesla CEO Elon Musk warned about the strength of Chinese electric car exports on the company’s earnings call in January. “Frankly, I think if there are no trade barriers in place, they will practically demolish most of the other companies in the world,” he said.

Rapid gains by BYD and other Chinese automakers in Europe have prompted a European Union investigation into Chinese government subsidies and could result in tariffs. BYD’s annual reports show a total of US$2.6 billion (R$13 billion) in government assistance from 2008 to 2022. And that doesn’t include other aid, such as ensuring that taxi companies in the company’s hometown buy only BYD electric cars.

BYD declined to comment on the subsidies. In a statement, the company said BYD Explorer No. 1, its new ship, “represents a significant milestone for BYD as it expands into international markets and contributes to the development of the global new energy vehicle industry.”

China has built enough factories to make more than twice as many cars as its market can buy. This led to a price war in China, especially between BYD and Tesla, with discounts causing huge losses. One of BYD’s latest models, the subcompact Seagull, starts at less than US$11,000 (R$55,000).

A housing crisis and a stock market crash are making Chinese consumers more cautious about buying a car. But BYD’s low production costs have left it in a better position than most competitors to survive any prolonged slowdown in sales and industry restructuring.


BYD Chairman Wang Chuanfu founded the company in 1995 to make batteries for Motorola and other consumer electronics companies. He had studied at South Central University in Changsha, an elite institution famous for battery chemistry research. But he dreamed of making cars.

In 2003, BYD purchased a factory in Xi’an that was building gasoline cars. But the company ran into trouble early on, earning an early reputation for building bad cars. On a visit to the factory in 2006, a large repair area at the end of the assembly line was clogged with newly built cars that already needed more work.

BYD’s sales grew as the Chinese market soared. Warren Buffett bought a nearly 10% stake for $230 million in 2008, giving BYD not just an influx of cash but also global prestige. In the same year, Wang promised to start exporting battery-electric cars to the United States within two years.

But electric cars at the time cost a lot to build and had limited range, and Wang had to abandon his plans to enter the American market. In a 2011 interview, he questioned his emphasis on battery-electric cars. Automakers should focus on gasoline-electric hybrids, he declared. He added: “There is still tremendous potential in the Chinese market for electric cars.”

In 2012, car production in China caught up with demand. Buyers have become more demanding. BYD’s car sales and share price plummeted as multinationals offered more stylish models. Industry executives and analysts questioned whether BYD had a future.

But Wang followed through with two risky bets that paid off.

In 2016, he hired Wolfgang Egger, a prominent designer at Audi, who in turn hired hundreds of automotive engineers with bold tastes. They completely redesigned BYD models.

Wang also discovered how to replace the industry standard chemicals in rechargeable lithium batteries – nickel, cobalt and manganese – with cheaper iron and phosphate. The first batteries made from cheap chemical compounds, however, ran out of charge quickly and needed to be recharged even on short trips.

In 2020, BYD released its Blade batteries, which closed most of the so-called range gap compared to nickel-cobalt batteries at a fraction of the cost.

Tesla began manufacturing and selling a large number of cars in China the same year, and enthusiasm for electric cars swept the country. BYD was ready with cheap battery chemistries and Egger’s new designs.

Tesla has also started using lithium iron phosphate batteries in less expensive models. BYD still mainly sells cheaper cars with less range, while Tesla mainly sells more expensive cars with more range.

BYD now has its own walled city in Shenzhen, a southeastern city next to Hong Kong. An airport-style monorail transports workers from the company’s 18-story apartments to BYD’s office buildings and research labs.

Liu Qiangqiang, an engineer from central Shenzhen, said the car development team has nearly tripled since he joined the company 15 months ago from GM.

“The pace is fast,” he said.


After ruling out autonomous driving a year ago, BYD took action when consumer electronics companies Huawei and Xiaomi introduced cars with considerable autonomous driving abilities. Wang announced in January that BYD had 4,000 engineers working on assisted driving, a limited form of autonomous technology that works mainly on highways and major roads, and would invest US$14 billion (R$70 billion) in the technology.

BYD has one lasting advantage over Tesla: Wang’s decision by 2011 to develop plug-in hybrid cars, which account for nearly half of BYD’s sales.

Li Jingyu, a salesman at a BYD dealership in Shenzhen, said many families bought a hybrid as their first car so they could drive for the Lunar New Year back to their ancestral villages. Most villages in China now have chargers, Li said, but not enough for the crowds of visiting drivers for the Lunar New Year, which began on Friday night.

“People are just worried,” he said, “about the wait time.”


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