The spotlight
With China’s and BYD’s success has come more scrutiny.
Elon Musk,CEO of Tesla,warned about the strength of Chinese electric car exports in a company earnings call in January. “Frankly,I think if there are not trade barriers established,they will pretty much demolish most other companies in the world,” he said.
The rapid gains by BYD and other Chinese automakers in Europe have prompted a European Union investigation of Chinese government subsidies and could result in tariffs. BYD’s annual reports show a total of $US2.6 billion in government assistance from 2008 through 2022. And that does not include other help,like making sure that taxi companies in BYD’s hometown buy only BYD electric cars.
BYD declined to comment about subsidies. In a statement,the company said the BYD Explorer No. 1,its new ship,“signifies a significant milestone for BYD as it expands into international markets and contributes to the development of the global new-energy vehicle industry.”
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China has built enough factories to make more than twice as many cars as its market can buy. That has led to a price war in China,particularly between BYD and Tesla,with discounting that has inflicted heavy losses. One of BYD’s newest models,the subcompact Seagull,starts at less than $US11,000.
A real estate crisis and a falling stock market are now making Chinese consumers warier about buying a car at all. But BYD’s low manufacturing costs have left it in a better position than most rivals to survive any long slowdown in sales and industry shakeout.
A rocky road to the top
BYD’s chair,Wang Chuanfu,founded the company in 1995 to make batteries for Motorola and other consumer electronics companies. He had studied at Central South University in Changsha,an elite institution famed for battery chemistry research. But he dreamed of making cars.
In 2003,BYD bought a factory in Xi’an that was building petrol-powered cars. But the company had trouble at the start,gaining an early reputation for building clunkers. In a visit to the factory in 2006,a large repair area at the end of the assembly line was clogged with newly built cars that already needed more work.
BYD’s sales grew as the Chinese market soared. Warren Buffett bought a nearly 10 per cent stake for $US230 million in 2008,giving BYD not just a cash infusion but also global cachet. The same year,Wang promised to start exporting battery-electric cars to the United States within two years.
But electric cars at the time cost a lot to build and had limited range,and Wang had to scotch his plans to enter the American market. In an interview in 2011,he second-guessed his emphasis on battery-electric cars. Automakers should focus on petrol-electric hybrids,he declared. He added,“There is still tremendous potential in the Chinese market for electric cars.”
By 2012,car production in China had caught up with demand. Buyers became choosier. BYD’s car sales and stock price plunged as multinationals offered more stylish models. Industry executives and analysts questioned whether BYD had a future.
No company has benefited as much from China’s embrace of battery-electric cars and plug-in petrol-electric cars.
But Wang proceeded to make two risky bets that paid off.
In 2016,he hired Wolfgang Egger,a prominent Audi designer,who in turn hired hundreds more car engineers with bold tastes. They completely redesigned BYD’s models.
Wang also figured out how to replace the industry’s standard chemicals in rechargeable lithium batteries — nickel,cobalt and manganese — with cheaper iron and phosphate. But early batteries made from the inexpensive chemical compounds ran out of juice quickly and had to be recharged after even 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 what they cost.
Tesla began making and selling large numbers of cars in China the same year,and enthusiasm for electric cars swept the nation. BYD was ready with inexpensive battery chemistries and Egger’s new designs.
Tesla also began using lithium iron phosphate batteries in less expensive models. BYD still sells mostly cheaper cars with lower range,while Tesla mostly sells costlier cars with more range.
The Swiss bank UBS found last year that a BYD Seal electric hatchback sedan cost 35 per cent less to make than a slightly smaller Volkswagen ID.3 of similar quality made in Europe. The savings came only partly from the cheaper lithium iron phosphate batteries.
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BYD makes three-quarters of the Seal’s parts. Like Tesla,BYD uses only a few electronic systems in each car. By contrast,VW outsources up to two-thirds of its components. BYD also has benefited from lower labor costs in China,although those have risen as factories compete to hire skilled workers.
BYD now has its own walled town in Shenzhen,a southeastern city next to Hong Kong. An airport-style monorail carries workers from 18-story company apartments to BYD’s office towers and research labs.
Liu Qiangqiang,an engineer at the Shenzhen centre,said the staff of his car development team had almost tripled since he joined the company from GMs 15 months ago.