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How China Built BYD, It's a Tesla Killer

How China Built BYD, It's a Tesla Killer

China's BYD was a battery maker that was trying its hand at manufacturing cars when it unveiled its latest model in 2007. American officials at the Guangzhou Auto Show were astonished by the car's uneven purple color and the ill-fitting of its doors.

“They were the laughingstock of the industry,” said China auto industry analyst Michael Dunn.

No one is laughing at BYD now.

The company overtook Tesla in worldwide sales of fully 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 increasing exports to Europe. And the company is on the verge of overtaking Volkswagen Group, which also includes Audi, as the market leader in China.

BYD's sales, more than 80 percent of which are in China, have increased by about a million cars in each of the past two years. The last automaker to accomplish this feat in even one year in the U.S. market was General Motors – and that was in 1946, when GM had suspended passenger car sales for the previous four years due to World War II.

“BYD's growth is unlike any the industry has seen in several 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 carmakers can take advantage of the country's dominance of electrical products. Neither company has benefited as much from China's adoption of battery-electric cars and plug-in gasoline-electric cars. These vehicles make up 40 percent of China's car 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 US because of Trump-era tariffs in place, but BYD does sell buses in the United States.

BYD is leading China's exports of electric cars, and is rapidly building the world's largest car carrier ships to transport them. The first of the ships, BYD Explorer No. 1, is on its maiden voyage from Shenzhen with 5,000 electric cars, and is expected to reach the Netherlands by February 21.

The success of China and BYD has brought more scrutiny.

Tesla Chief Executive Elon Musk warned about the strength of Chinese electric car exports in the company's earnings call in January. He said, “Frankly, I think if trade barriers weren't put in place, they would collapse most other companies in the world.”

Rapid profits by BYD and other Chinese automakers in Europe have prompted the EU to investigate Chinese government subsidies and could result in tariffs. BYD's annual report shows government support totaling $2.6 billion from 2008 to 2022. And that doesn't include other help, like ensuring that taxi companies in BYD's hometown only buy BYD electric cars.

BYD declined to comment about the subsidies. In a statement, the company said BYD Explorer No. 1, its new ship, “represents 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 can be bought in its market. This has sparked a price war in China, especially between BYD and Tesla, with discounts causing huge losses. One of BYD's latest models, the subcompact Seagull, starts at less than $11,000.

Chinese consumers are now becoming cautious about buying cars due to the real estate crisis and falling stock market. But BYD's low manufacturing costs have left it in a better position than most rivals to avoid any prolonged downturn in sales and industry shocks.

BYD's chairman, Wang Chuanfu, founded the company in 1995 to make batteries for Motorola and other consumer electronics companies. He studied at Central South University in Changsha, an elite institution renowned for battery chemistry research. But his dream was to make cars.

In 2003, BYD purchased a factory in Xi'an that was manufacturing gasoline-powered cars. But the company had a rough start and gained an early reputation for making clunkers. In a tour of the factory in 2006, a large repair area at the end of the assembly line was filled with newly built cars that already needed more work.

BYD's sales increased as the Chinese market grew. Warren E. Buffett bought a roughly 10 percent stake in 2008 for $230 million, giving BYD not only cash but also global profits. That same year, Mr Wang promised to begin exporting battery-electric cars to the United States within two years.

But electric cars at the time cost too much to make and had limited range, and Mr Wang had to put his plans to enter the US market on hold. In an interview in 2011, he speculated on his emphasis on battery-electric cars. Automakers should focus on gasoline-electric hybrids, he declared. “There is still tremendous potential in the Chinese market for electric cars,” he said.

By 2012, car production in China had caught up with demand. Buyers became more selective. BYD's car sales and stock price declined as multinational companies introduced more stylish 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, he hired Wolfgang Egger, a leading Audi designer, who in turn hired hundreds more car engineers with a penchant for adventure. They completely redesigned BYD's models.

Mr Wang also figured out how to replace the industry standard chemicals in rechargeable lithium batteries – nickel, cobalt and manganese – with cheaper iron and phosphate. But early batteries made of cheap chemical compounds drained 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 at a fraction of their cost.

Tesla began manufacturing and selling large numbers of cars in China that same year, and enthusiasm for electric cars grew throughout the country. BYD was ready with cheaper battery chemistry and Mr. Egger's new design.

Tesla also began using lithium iron phosphate batteries in less expensive models. BYD still sells mostly cheap cars with low range, while Tesla sells mostly expensive cars with high range.

Swiss bank UBS found last year that BYD's Sealed electric hatchback sedan costs 35 percent less to make than a slightly smaller Volkswagen ID.3 of similar quality made in Europe. Savings came partly from cheaper lithium iron phosphate batteries.

BYD makes three-quarters of Seal's parts. Like Tesla, BYD uses only a few electronic systems in each car. In contrast, VW outsources two-thirds of its components. BYD has also benefited from low labor costs in China, although competition among factories to hire skilled workers has led to increased costs.

BYD now has its own walled city in Shenzhen, a southeastern city next to Hong Kong. An airport-style monorail takes workers from 18-story company apartments to BYD's office towers and research laboratories.

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

“The pace is fast,” he said.

After dismissing autonomous driving a year ago, BYD sprang into action when consumer electronics companies Huawei and Xiaomi introduced cars with considerable autonomous driving capabilities. Mr Wang announced in January that BYD had 4,000 engineers working on assisted driving, a limited form of autonomous technology that works primarily on highways and major roads, and a $14 billion investment in the technology. Will do.

BYD has had one continued advantage over Tesla: Mr Wang's decision to develop plug-in hybrid cars by 2011, which account for about 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 go back to their ancestral villages on the Lunar New Year. Most villages in China now have chargers, Mr. Li said, but not enough for the rush of drivers arriving for the Lunar New Year, which began Friday night.

“People are just concerned about the wait times,” he said.

li yu And joey dong Contributed to reporting and research.




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