Chinese EV Maker BYD Aims to Conquer World Markets as the Un-Tesla

After PK Saxena moved from the southern Australian city of Adelaide to the tiny town of Booleroo Centre in January, the 36-year-old high school teacher found himself facing a daily commute of about 75 kilometers (46 miles) to and from his new school in rural Orroroo. So he decided to switch to an electric car. “Fuel costs really do add up when you move out to the countryside,” he says..Saxena briefly considered Tesla Inc.’s lowest-priced EV, the Model 3, but eventually settled on a metallic gray Atto 3 from a new entrant to the local market: China’s BYD Co. Although little known in Australia, the company is a giant in its homeland, where it’s been making vehicles for almost two decades and counts Warren Buffett as a longtime investor. Saxena expects to get his BYD delivered soon for a price of about A$47,000 ($33,000), two-thirds the cost of Tesla’s Model 3. “It hits that sweet spot, where it’s not expensive like some of the high-range cars but has enough to get you there,” he says..Tesla and its messianic chief executive officer, Elon Musk, have captured the attention of investors and drivers around the world with one vision of the future of electrified mobility. But BYD’s billionaire founder and CEO, Wang Chuanfu, is vying to transform his company, already the biggest EV producer in China’s ultracompetitive market, into a major global player in electrified transport by taking a very different approach. If he succeeds in expanding internationally, it could bring a level of recognition and scale that has eluded countless other Chinese automakers..In many ways BYD is the un-Tesla. Musk began by selling luxury sedans whose sticker price could exceed six figures, but Wang from the start focused on developing affordable cars within reach of middle-class Chinese drivers. Unlike Tesla, which has yet to launch an electric bus and has struggled with trucks, BYD has a diversified plug-in product line that includes trucks, forklifts, and buses. And while Musk is hostile to labor unions, Wang has a unionized workforce at his factory in Lancaster, Calif., that primarily makes buses for the US market..Then there’s the different approach to government relations in their home countries: Musk has traded barbs with President Joe Biden; Wang on Aug. 17 hosted a visit by Chinese Premier Li Keqiang, who toured BYD headquarters and vowed to continue support for the electric car market. BYD could become an “ace” if it combines both the spirit of science and the spirit of craftsmanship, Li said..BYD’s embrace of vertical integration, however, could prove to be its biggest difference from—and perhaps advantage against—Tesla and legacy automakers only now entering the EV space. Wang, a chemistry graduate from a farming family, was an early advocate of the strategy, with BYD not only manufacturing vehicles but also producing its own semiconductors and batteries. It’s now the world’s third-largest producer of batteries for EVs, with 14% of the global market, behind Chinese rival Contemporary Amperex Technology Co. Ltd. and South Korea’s LG Energy Solution Ltd. BYD’s battery customers include Toyota Motor Corp., and BYD Executive Vice President Lian Yu-bo in June said the company was preparing to sell batteries to Tesla..With growing demand for EVs creating a shortage of lithium, a critical material in batteries, Wang is now counting on a payoff from building close ties with upstream producers of the metal. His deputy at BYD, Vice Chairman Lv Xiang-yang, is the head of Youngy Co., a Chinese lithium processor that in June said an affiliate had won a major order from BYD. In March, BYD agreed to invest up to 3 billion yuan ($442 million) in Chengxin Lithium Group Co., a supplier with projects in China’s Sichuan province as well as Argentina and Indonesia..“BYD is the most vertically integrated company that I’ve ever seen, not just in the auto space,” says Taylor Ogan, CEO of Snow Bull Capital, a green- technology-focused hedge fund that owns stakes in both BYD and Tesla. “BYD already does almost everything Tesla is trying, and much more.”.The idea of producing well-equipped but relatively cheap electric vehicles for the masses isn’t new. Musk in 2018 made headlines when he said Tesla might roll out a $25,000 car within three years. That never took off, and Musk repeated the vow in 2020. That would’ve set the arrival of Tesla’s everyman EV for sometime in 2023. But in January of this year, Musk told investors that the company was too busy with other projects to concentrate on a cheap car for the masses right now. Its current lowest-priced vehicle costs $46,990 in the US and 280,000 yuan after government subsidies in China, its two biggest markets. By contrast, after subsidies, BYD’s cheapest EV starts at just 96,000 yuan..Australia is only one of a raft of countries where Wang sees opportunities to replicate his company’s successful mass-market strategy. BYD, based in the technology hub of Shenzhen, accounts for about 26% of new-energy vehicle sales in China, well ahead of No. 2 Tesla’s 11%, according to Citigroup. BYD has started selling its Han four-wheel-drive EV in Brazil, forged agreements with partners to open dealerships in Australia and New Zealand, and recently revealed plans to enter several countries including Germany, Israel, and Thailand..Wang’s bet is that expansion will give BYD a head start as the world transitions to plug-in cars, a shift that China has dominated. Other than Tesla, most major automakers are still in the early stages of their EV rollouts. For BYD, that means “they do have the opportunity to entrench themselves and build a certain level of scale,” says Ben Selwyn, director of North Sydney-based consultancy ACA Research. “There aren’t too many brands with competitive products at competitive pricing.”.By many measures, Wang’s strategy has paid off already. BYD is the world’s third-most valuable carmaker (after Tesla and Toyota) with a market capitalization of about HK$1 trillion ($127.5 billion). Although it has a legacy business selling internal combustion engine cars, BYD said in April it had stopped making them. This year it sold 800,000 new-energy passenger vehicles through July, more than it did in all of 2021. “BYD is committed to meeting the needs of more market segments with safer, more reliable new energy technologies and products to accelerate the adoption of NEVs,” a company spokeswoman said in an emailed response..BYD’s self-reliance has also helped it avoid some of the supply chain bottlenecks that have hindered other Chinese automakers, says Kelvin Lau, an analyst in Hong Kong with Daiwa Capital Markets. Over the past 12 months, he says, “probably only BYD recorded very consistent sales increases, while others on and off have been affected by chip supply.”.Wang is even eyeing selling in Japan, where Toyota and other big players won’t have large numbers of EVs available for several years and are more exposed to the vagaries of supply chains. That’s an opportunity for BYD, which can rely on its own high-performance batteries, says Atsuki Tofukuji, the head of BYD Auto Japan Inc. “That’s our biggest advantage,” he says..One big question for Wang is how long that advantage can last. Industry heavyweights such as Toyota aren’t able to compete with BYD’s electric cars for now. But given the economies of scale enjoyed by Japanese automakers, the established players will likely catch up quickly when they’re ready to push EVs globally in a few years, says Kota Yuzawa, head of Asia auto research at Goldman Sachs Group Inc. “First-mover advantage is not going to be that large in this industry,” he says..Pursuing vertical integration by investing in overseas lithium production, where government officials may not be as BYD-friendly as their Chinese counterparts, is also risky. BYD received an unwelcome reminder of that in June, when Chile’s Supreme Court tossed out a government contract that BYD had won in January to produce lithium there. “It’s going to be really challenging to get projects online and have them be consistently producing,” says Caitlin Purdy, co-author of several recent Brookings Institution reports on such mining..However, the big question for Wang right now is what legendary investor Buffett is up to. The $230 million in BYD shares that Buffett’s Berkshire Hathaway Inc. bought in 2008 has grown into a stake now worth about $8 billion. In mid-July, a BYD position matching the size of Berkshire’s appeared in Hong Kong’s stock market clearing system. Such moves are often seen by traders as precursors to sales, because shares must enter the system before transactions can be settled. Berkshire Hathaway didn’t respond to requests for comment..The possibility of a Buffett exit has put a spotlight on another BYD weakness: the company’s thin profit margins. Earnings accounted for less than 2% of revenue in 2021 vs. about 10% for Tesla. In part that’s because of BYD’s focus on selling mass-market cars. Its newest model, an SUV called the Yuan Plus, sold as the Atto 3 in overseas markets, sells for as little as 137,800 yuan after subsidies. Its closest Tesla competitor, the Model Y, costs 316,900 yuan..BYD is focused on overseas growth rather than short-term profitability, says Steve Man, senior autos analyst with Bloomberg Intelligence in Hong Kong. “That’s the strategy: Try to get in the door and build even larger scale,” he says. “They have their eyes set beyond China.”.Back in Booleroo Centre, teacher Saxena is eager to finally get behind the wheel of his BYD, while conceding he’s taking a risk. “I don’t have a concern about the engineering quality as such, but how much do they know about the markets outside China and what consumers want?” he says. “That’s a big leap of faith.” So is Wang’s plan to muscle into Tesla’s lane. .More stories like this are available on bloomberg.com.©2022 Bloomberg L.P.

Chinese EV Maker BYD Aims to Conquer World Markets as the Un-Tesla

Already the biggest electric vehicle producer at home, it bets low prices and producing its own batteries and chips will make it a global leader.

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