Home BusinessAutomobile How China built BYD, its Tesla killer

How China built BYD, its Tesla killer

by SuperiorInvest

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

“They were the laughing stock of the industry,” said Michael Dunne, a China auto industry analyst.

Nobody laughs at BYD now.

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

BYD's sales, more than 80 percent of them in China, have increased by about a million cars in each of the past two years. The last automaker to achieve that in just one year in the U.S. market was General Motors, and that was in 1946, after GM suspended passenger car sales for the previous four years due to World War II.

“BYD's growth is unlike anything the industry has seen in many decades,” said Matt Anderson, curator of transportation 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 as much from China's adoption of battery electric cars and plug-in gasoline electric cars. These vehicles together account for 40 percent of China's auto market, the world's largest, and are expected to account for more than half next year. Like most Chinese automakers, BYD does not sell its cars in the United States because Trump-era tariffs remain in place, but BYD does sell buses in the United States.

BYD is leading China's electric car export push and is rapidly building the world's largest car carriers to transport them. The first of the ships, 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 on February 21.

With the success of China and BYD has come greater scrutiny.

Tesla CEO Elon Musk warned about the strength of Chinese electric car exports in a company earnings conference call in January. “Frankly, I think if trade barriers are not put in place, they will pretty much demolish most other businesses in the world,” he said.

Rapid advances by BYD and other Chinese automakers in Europe have sparked a European Union investigation into Chinese government subsidies and could result in tariffs. BYD's annual reports show a total of $2.6 billion in government assistance from 2008 to 2022. And that doesn't include other aid, like making sure taxi companies in BYD'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, “signals an important 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 has led to a price war in China, particularly between BYD and Tesla, with discounts causing huge losses. One of BYD's newest models, the subcompact Seagull, starts at less than $11,000.

A housing crisis and a stock market crash are making Chinese consumers more cautious about buying a car. But BYD's low manufacturing costs have left it better positioned than most rivals to survive any prolonged sales slowdown and industry shocks.

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

In 2003, BYD bought a factory in Xi'an that made gasoline-powered cars. But the company struggled at first and gained a reputation for making scrap metal. On a factory visit in 2006, a large repair area at the end of the assembly line was packed with newly built cars that already needed more work.

BYD's sales grew as the Chinese market soared. Warren E. Buffett bought a nearly 10 percent stake for $230 million in 2008, giving BYD not only a cash injection but also global prestige. 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 thwart his plans to enter the US market. In a 2011 interview, he questioned his emphasis on battery electric cars. Automakers should focus on gasoline-electric hybrids, he said. He added: “There is still huge potential in the Chinese electric car market.”

By 2012, automobile production in China had caught up with demand. Buyers became more selective. BYD's car sales and share price plummeted as multinationals offered fancier models. Industry executives and analysts questioned whether BYD had a future.

But Mr. Wang proceeded to make two risky bets that paid off.

In 2016, it hired Wolfgang Egger, a prominent Audi designer, who in turn hired hundreds of automotive engineers with bold tastes. They completely redesigned the 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. But early batteries made from inexpensive chemicals ran out quickly and had to be recharged even after short trips.

In 2020, BYD introduced its Blade batteries, which closed most of the so-called range gap with nickel-cobalt batteries for a fraction of what they cost.

Tesla began manufacturing and selling a large number of cars in China that same year, and enthusiasm for electric cars spread throughout the country. BYD was ready with inexpensive battery chemistries and Mr. Egger's new designs.

Tesla also began using lithium iron phosphate batteries in less expensive models. BYD still sells mostly cheaper cars with lower range, while Tesla mainly sells more expensive cars with longer range.

Swiss bank UBS found last year that a BYD Seal electric hatchback sedan cost 35 percent less to make than a slightly smaller, similar-quality Volkswagen ID.3 made in Europe. The savings came only partly from cheaper lithium iron phosphate batteries.

BYD makes three-quarters of the Seal's parts. Like Tesla, BYD uses only a few electronic systems in each car. By contrast, VW outsources up to two-thirds of its components. BYD has also benefited from lower labor costs in China, although they have risen as factories compete to hire skilled workers.

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 towers and research labs.

Liu Qiangqiang, an engineer at the Shenzhen center, said his auto development team's staff has nearly tripled since he joined the company from General Motors 15 months ago.

“The pace is fast,” he said.

After ruling out autonomous driving a year ago, BYD sprang into action when consumer electronics companies Huawei and Xiaomi introduced cars with considerable autonomous driving capabilities. 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 large roads, and that it would invest $14 billion in the technology.

BYD has one persistent advantage over Tesla: Wang's 2011 decision 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 on 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 on the Lunar New Year, which began Friday night.

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

Li you and Joy Dong contributed with reports and investigations.

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