Why Elon Musk can’t scoff at China’s BYD any more

Behind BYD’s transformation from a factory making rechargeable batteries to a formidable electric vehicle maker lies China’s industrial policy and the company’s strategic acumen
The carmaker, which also produces battery and electric vehicle chips, is setting its sights beyond the Chinese market – world domination is within grasp

Christopher Tang

Published: 4:30pm, 29 Jun 2023

Why you can trust SCMP

Which carmaker is likely to dominate the world’s electric vehicle (EV) market? My bet is on China’s BYD. As the US-China trade war drags on, more American companies are diversifying their supply base away from China. At the same time, many Chinese are turning away from US fossil fuel vehicles, drawn partly by subsidised EV prices. Last year, General Motor’s car sales in China fell by 20 per cent while Ford’s dropped by 33.5 per cent.

In the global race to curb carbon emissions, many governments are offering incentives to encourage EVs, making the market the next battlefield for carmakers. BYD’s results speak for themselves. Despite the pandemic, BYD reported that its operating revenue grew by 96 per cent last year while its net income of 16.6 billion yuan (US$2.3 billion) represented a growth rate of 446 per cent.

Last year, BYD dominated in China, the world’s largest EV market. It reported that it had 27 per cent of the market share in the country; close competitor Tesla, which sold 439,770 EVs to Chinese consumers, had less than 10 per cent. Globally, BYD has also overtaken Tesla as the bestselling EV maker, with more than 1.8 million vehicles against Tesla’s 1.3 million last year.

How did BYD, founded in 1995 as a factory making rechargeable batteries, become a world-leading EV maker? Its recipe for success is a combination of Chinese industrial policy and the company’s own strategic acumen.

The market for fossil fuel vehicles has long been dominated by European and US companies, and competing against them would have been an uphill battle. Instead, China saw a window of opportunity in EVs, so deployed an industrial policy from the late 2000s to create and encourage an EV market.

First, the pioneering city government of Shenzhen – home to BYD – started trials of electric public buses and taxis in 2010. This generated the initial demand for EVs while also making it easy for the city to manage charging operations using the fixed locations of bus and taxi depots.

This gave BYD, which later made e-buses that were to sold to Shenzhen and elsewhere, time to improve the functionality and quality of its EVs in a controlled environment. As more electric buses and taxis appeared, public awareness grew. More Chinese cities, such as Suzhou, followed suit.

Then, to stimulate demand for passenger electric cars – more challenging because of concerns over charging infrastructure and driving range – the Chinese government offered to subsidise EV purchases. Last week, tax breaks were extended to 2027.

The government also partnered with private companies to construct charging stations nationwide, and now has 5.2 million charging stations – 1.8 million public and 3.4 million private.

BYD has grown alongside China’s EV market. In 2011, when its early F3 models were still failing crash tests, Elon Musk burst out laughing in an interview when BYD was named as a potential competitor.

To gain consumer confidence, BYD not only worked on perfecting the safety of its cars but also adopted total quality management principles. Last year, BYD’s fully electric Atto 3 SUV received a five-star safety rating from the European New Car Assessment Programme.

01:47

Behind the scenes at BYD Auto: China’s biggest electric vehicle factory

BYD also uses a vertical integration strategy – meaning it relies more on in-house processes than external suppliers – which helps it quickly develop affordable and attractive EV models for different market segments.

The company started out by learning from reverse engineering foreign cars. Its first self-developed car, the F3, looked like a Toyota Corolla and was launched in 2005 at a much lower price. But BYD had aspirations of becoming a world-leading EV maker so it began to build its in-house capabilities.

Today, BYD cars use “blade batteries”, its proprietary lithium iron phosphate batteries that are said to be safer, cheaper and more durable than conventional lithium-ion ones. BYD is also capable of producing its EV chips. By integrating these in-house research and development capabilities, BYD has more control over the cost, quality, speed of development and supply of key components.

This also enables BYD to target different market segments with different models. Those in China include the new Dolphin, a compact hatchback EV, with a base price of US$16,700, and the Han, a luxury sedan with a base price of US$40,000 seen as competition for Tesla’s Model 3 and Model S.

A BYD Dolphin on display at the 44th Bangkok International Motor Show in Thailand on March 23. Photo: Reuters

And while China remains BYD’s key market, the company is expanding in more than 15 overseas markets including Norway, Sweden, Germany, Denmark, France, Israel, Thailand and India. For the European market, BYD plans to introduce the Dolphin by the end of the year, priced at US$33,000. It also plans to partner with Saga, one of the biggest dealerships in Latin America, to operate at least 100 stores in Brazil by the end of the year.

To support international sales, BYD is building an EV factory in Thailand expected to begin production next year. It also plans to build factories in Vietnam and Brazil.

While BYD has a factory in Lancaster, California, that produces electric buses, it has not yet entered the US passenger EV market. China-made cars face compliance challenges and a 27.5 per cent tariff – the same hurdles that turned Tesla’s off exporting its China-made EVs to the US.

But even if US protectionism is depriving American consumers of access to affordable Chinese EVs, BYD continues to expand globally. No wonder Musk has finally admitted that BYD cars are “highly competitive these days”.

Christopher Tang is a distinguished professor at the UCLA Anderson School of Management