The Chinese car company is looking for a way to conquer Europe.
In 2011, on Bloomberg Television Tesla CEO Elon Musk laughed when host Betty Liu asked him if he was worried about competition from Chinese automaker BYD. “And have you seen that car? I don’t think they have a good product,” Elon Musk replied then.
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Twelve years later, the Chinese automaker has surpassed Tesla. In the final quarter of 2023, it sold a record 526,000 battery-powered cars, which is 42,000 more than Tesla.
The American automaker remained number one in global sales for the entirety of last year (1.8 million), but BYD with 1.6 million cars sold is giving it a run for its money. Behind them is the German Volkswagen with 825,000 electric cars sold.
BYD is the flagship of the Chinese auto industry and the tip of the iceberg. Last year, China overtook automotive powerhouse Germany in car exports, and this year it will overtake Japan.
China’s auto export statistics were generated from the Russian market, where Chinese automakers export cars with internal combustion engines by rail.
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Chinese strategy
The BYD automobile company is the result of China’s strategy to disrupt the traditional world of automobiles. The Chinese Communist Party has realized that with conventional combustion engine cars it can represent the largest consumer market, but it cannot keep up with the technological progress of Japanese, German or US companies.
In 2001 the Communist Party focused on electric mobility. It skipped the old fossil phase of automotive development and pushed the advent of electric mobility through state policy instruments, which include generous subsidies, loans from state banks and concessions for the purchase of electric cars.
Over the course of twenty years it has built its own ecosystem: from research and development, through building supply chains, securing rare raw materials from Africa and Latin America, to the production of batteries and cars. The Communist Party relied on fierce competition from companies founded on green soil.
In the last ten years, fifty private car companies such as Xpeng, Li Auto and Nio have been created, whose models look more like computers on wheels. These companies joined traditional state-owned automakers that have been producing cars since the 1950s: SAIC Motor, Dongfeng Motor and Faw Group.
The State granted subsidies to everyone and only the best managed to win a tough fight. One of them is the car company BYD.
From a farmer’s son to a billionaire
He is supported by one of the richest Chinese Wang Chuan-fu. He comes from a family of rice farmers, was orphaned as a child and grew up with his older brothers. A chemist graduate, he initially worked as a government researcher, but in 1995 he founded BYD. The initial capital (equal to $300,000) was provided by his cousin.
Wang originally said that the combination of the letters BYD had no deeper meaning; today the company says that BYD is an abbreviation of the words Build Your Dreams, although Wang reportedly joked in private that it was more by Bring Your Dollars. .
The company initially focused on the development and production of batteries used in computers and mobile phones. Until then, China relied on importing batteries from Japanese companies like Sanyo and Sony.
Unlike the capital-intensive and automated processes in Japan, BYD has implemented a low-cost labor approach. This means that in the factory Wang broke down the manufacturing process into small steps that anyone on the street could handle. The goal was speed and effort to avoid purchasing expensive machines.
BYD got its first major orders through a young Chinese student, Stella Li, who traveled around Europe and the United States. Her goal was to convince company executives to give BYD a chance. Motorola chief Micheal Austin admitted to the Wall Street Journal that a Chinese woman approached him in stern English and convinced him that BYD would reduce its costs with cheaper batteries.
The BYD company gradually became a supplier to companies such as Black & Decker (power tools) or mobile phone manufacturers Nokia and Motorola. The road to success was marked by numerous intellectual property lawsuits with Sanyo and Sony, from which BYD stole know-how and subsequently a dominant market position.
Within a few years, BYD became a leading manufacturer of nickel-cadmium and lithium batteries and later various phone components, which the company separated in 2007 into a separate division, BYD Electronics.
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Entry into the automotive sector
The company’s success was aided by its listing on the Hong Kong stock exchange in 2002. Investor capital was initially supposed to be used to increase battery production.
However, in 2003, BYD’s management made an unexpected decision and purchased the loss-making Shaanxi Qinchuan Auto Company for 250 million yuan. Qinchuan Auto’s technology was obsolete and production capacity was limited. BYD initially continued production of the internal combustion Flyer car, originally developed by Qinchuan Auto, and began exporting it to the Russian and Ukrainian markets.
The turning point came in 2005, when BYD introduced the first plug-in hybrid F3, which was almost identical to the Toyota Corolla. The only difference between them was the logo. At that time, Chinese media ran commercials from auto repair shops offering to swap the BYD logo on the hood for the Toyota brand.
Wang was not ashamed to admit that his strategy was to copy the best. It worked for him with batteries, so he tried it with cars too. They deliberately avoided only patented components.
When producing cars, BYD avoided expensive investments in automation and hired thousands of workers to handle simple processes behind them. The car company specifically hired them on short-term contracts to avoid salary increases and replaced them after a few years.
To date, BYD hires employees as human robots who are paid less than $750 a month compared to a thousand-dollar salary at Tesla’s Shanghai factory. The new factories built by BYD are already based on a higher degree of automation.
The Chinese automobile company has gradually become a self-sufficient island. It has taken under its wing the production of almost all components: from bodywork, to headlights, to semiconductors and batteries. The only exceptions were tires and windshields.
This is how BYD managed to sell the F3 model at half the price of the Toyota Corolla. The automaker had quality issues, but the low price and Japanese design placed the model at the top of the sales charts in China.
Warren Buffett’s investment
BYD’s success was noticed in 2008 by legendary investor Charlie Munger (Warren Buffet’s trading partner at Berkshire Hathaway). Berkshire sent David Sokol (head of MidAmerican Energy, which belongs to Buffett’s conglomerate) to the BYD factory in Shenzhen to beat the Chinese company.
Wang showed the American a prototype of the world’s first plug-in hybrid car, which BYD managed to launch in the same year. BYD burned the pot of General Motors and Toyota as they prepared to introduce their own hybrids.
In September 2008, the American conglomerate Berkshire invested $230 million in BYD, acquiring a 10% stake. Charlie Munger, who initiated the investment before Warren Buffett, said he saw in BYD’s founder elements of light bulb inventor Thomas Edison and former General Electric chief Jack Welch, who became famous as a business strategist.
Berkshire currently holds just a 3% stake in BYD, having sold much of the investment due to growing geopolitical risk.
The advent of electric cars
During 2009, Buffett’s investment in BYD attracted other investors. The share price increased fivefold. BYD founder became China’s richest man. The stock’s growth was aided by BYD’s introduction of its first electric car, the BYD e6, in the same year, which took advantage of Chinese government subsidies to promote electromobility.
After 2010, other electric car startups were born in China and began to churn out their own models. Competitive pressure intensified in 2019 when American Tesla opened a plant in Shanghai. In 2020, it achieved a 20% share of electric car sales, at the expense of the cheaper BYD.
The pandemic arrived, the Chinese economy cooled, and the communist government cut subsidy schemes. BYD fought for survival. Pushing her into a corner paradoxically helped her. It began to experiment with new batteries with greater autonomy (Blade battery) and introduced the first more luxurious models, challenging Tesla, Nio or Xpeng.
The price war started by Tesla in China in late 2022 has motivated BYD to look at overseas markets. Over the next three years it plans to supply electric trucks and buses abroad and has signed the first contracts with customers in the US, UK and Japan.
For cars it is more complicated. Chinese car imports are subject to tariffs of 25% in the US and 10% in the EU. Additionally, last fall Brussels began investigating China’s subsidy policy to protect domestic automakers. In Europe, BYD sold just 14,000 cars last year (mostly the Atto 3 electric sedan), a negligible number, but it has big ambitions.
BYD is trying to find a way to infiltrate the West and avoid customs duties. One of the solutions is building factories in Europe. In December last year, BYD announced the construction of a factory in Hungary. It has been operating in the country for a long time, as it owns an electric bus factory in the city of Komárom and produces batteries in Budapest.
While the Hungarian factory is being built, BYD has leased a huge vessel from Zodiac Maritime called BYD Explorer No. 1. It can put seven thousand electric cars on board. The first voyage of a ship fully loaded with electric cars headed to European shores began in mid-January 2024.
2024-01-18 17:08:51
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