Hong Kong (CNN) — This week, more than 5,000 electric vehicles were loaded onto a giant sea vessel in China and shipped to European ports.
The cars come from BYD, the Warren Buffett-backed Chinese automaker that has overtaken Tesla as the world’s largest seller of electric vehicles.
According to China’s state news agency, Bass is on its maiden voyage.
It’s a stark visual example of the growing clout of BYD, which has conquered its home market but now needs to break new ground to maintain its momentum.
For this two countries will be crucial: Hungary and Mexico. While neither is a major automotive market, they could serve as gateways to Europe and North America, bolstering the company’s bid to truly become a household name around the world.
The electric vehicles wait to be loaded onto the “BYD Explorer No. 1”, a sea transport vessel meant to export BYD vehicles, at Yantai Port in east China’s Shandong Province in January. Credit: STR/AFP/Getty Images
BYD has started to make inroads in both countries. In December it committed to opening a plant in Hungary, which will be its first automotive manufacturing plant in Europe. Prime Minister Viktor Orbán’s government has said it is one of the largest investments in the country’s history and will create thousands of jobs in the southern city of Szeged.
The company is also evaluating the possibility of establishing itself in Mexico. It has expressed interest in building a plant in the country, although plans had not been officially confirmed as of January, a source familiar with the matter in the government of the southeastern state of Yucatán told CNN. BYD México did not respond to a request for comment.
Experts say expansion into Hungary and Mexico will help the Shenzhen-based company gain a foothold on opposite sides of the Atlantic while avoiding heavy tariffs. The plans could also help BYD navigate a difficult geopolitical environment, especially as some European politicians are increasingly wary of what has been seen as an “avalanche” of Chinese electric vehicles.
But those who have long watched the BYD company, a brand that was once relatively unknown abroad and even mocked by Tesla CEO Elon Musk in 2011, say the expected moves are not simply a reaction to growing protectionism.
“I would see it as a continuation of its global expansion and manufacturing footprint,” said Tu Le, founder of consultancy Sino Auto Insights. “It’s no secret that they have big ambitions for global domination.”
Two new routes
Hungary, a small landlocked country of 9.6 million people, has become an increasingly important manufacturing hub in Europe for automotive suppliers, especially Chinese ones.
Chinese companies such as battery giant CATL and carmaker Nio have made major manufacturing investments in the country in recent years, along with German competitors Mercedes, BMW and Audi.
BYD was already present there as it opened an electric bus facility in the city of Komárom in 2017.
With the new plant in Szeged, the company will also gain free trade access for its passenger vehicles. And not just towards Hungary, China’s long-time economic partner, but also towards 26 other members of the European Union, according to Matthias Schmidt, a European automotive analyst who heads the firm Schmidt Automotive Research.
You’ll also benefit from “all the benefits that Western European countries offer at a fraction of the cost,” he told CNN, citing lower labor and energy costs in Hungary than in other regional auto hubs such as France or Germany.
While the facility was likely planned years ago, experts say it is particularly timely because it will allow BYD to evade Europe’s 10% tariffs on cars imported from the world’s second-largest economy, along with any other taxes stemming from an E.U. in progress. investigation into Chinese state support for electric vehicle manufacturers.
The investigation was announced last September by the European Commission, which said it was trying to expose how prices of electric vehicles imported from China were “kept artificially low”.
European tariffs are expected to rise after the investigation concludes, although BYD will likely be able to avoid paying more, Schmidt said.
Bill Russo, founder and CEO of Shanghai-based strategy consultancy Automobility, echoed this sentiment.
Unless lawmakers establish new rules that focus on a brand’s country of origin — in this case, China — rather than its country of production, BYD’s Hungarian factory should allow it to bypass such tariffs, he said.
In Mexico one might expect a similar situation. BYD currently does not sell passenger cars in the United States, where Chinese-made cars face high import tariffs of 27.5%.
That could soon change if the automaker establishes production in Mexico, where it sells buses and cars.
Under the United States-Mexico-Canada Agreement (USMCA), the trade agreement that replaced NAFTA in 2020, 75% of every passenger vehicle must be produced in North America to avoid tariffs.
Since Mexico is part of the agreement, it has become more attractive to Chinese automakers.
The country can serve as an “entry point for production and export to North America,” Le said. “The U.S. government will not like Mexico creating a back door.”
A BYD electric vehicle, operated by Vemo, in Mexico City in November. Credit: Mariceu Ethrall/Bloomberg/Getty Images
In addition to advantages such as lower labor and transportation costs, Mexico is considered a strong base for BYD because Tesla is building a factory in the country. The American automaker is now one of BYD’s battery customers, following a Musk’s change of mind.
“It’s not just about an end product strategy for them,” Le said. “It’s also: ‘We sell batteries into the Latin American market.’ And guess what? One of our biggest customers is building a Gigafactory there. So it makes sense for us to be right next to them.”
In September, BYD Executive Vice President Stella Li told Mexican outlet El Sol de México that the company was targeting a factory in the country, though it would depend on the market’s response.
“If we see that there is a large demand, we will consider producing the vehicles here,” Li said.
Globalisation
BYD, founded by Wang Chuanfu, built its reputation as a battery maker before making the leap overseas.
The company’s first international foray came in 1998, with the creation of its first branch in the Dutch region of Rotterdam, where it established a European headquarters and began importing batteries.
Although this was just three years after its founding, the company did not sell any vehicles in Europe until 14 years later, with the launch of electric buses, forklifts and taxis in 2012.
Unlike other Chinese companies, BYD “did not prioritize overseas sales at first,” Russo notes.
Instead, he focused on conquering China, where he managed to put Tesla, the historic champion of the sector, in difficulty.
BYD was the best-selling car brand in China last year, with vehicles starting at $11,000.
But “now they’re turning the corner, because I think they’ve reached a point where, in order to grow, they have to prioritize foreign sales,” Russo told CNN.
The figures reflect this change. BYD’s presence now extends to more than 70 countries, up from more than 50 in 2020. The company is rapidly adding to existing foreign production in places like California and Brazil, where it makes electric buses, with plans for new factories in Indonesia, Thailand and Uzbekistan.
In the first half of 2022, up to 40% of BYD’s customers came from the domestic market, which includes mainland China, Macau, Hong Kong and Taiwan.
A year later, according to its latest interim annual report, the company reduced that percentage to 33%.
BYD has seen aggressive growth in its vehicle exports, which rose 334% last year to just under 243,000 units.
This leap is likely to have contributed to China overtaking Japan as the world’s largest auto exporter in 2023.
But as it continues to grow overseas, BYD will have to take a more localized approach, analysts say.
To win over politicians and consumers, it will be essential to build factories near key markets.
This demonstrates a desire to create local jobs, which could help the company gain good will, and “then lead to what is perhaps more favorable treatment from governments in the region,” Russo said.
“Geopolitics is a key factor.”
— Karol Suarez and Lizzie Jury contributed to this report.
2024-01-19 22:28:00
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