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Tesla, a manufacturer of electric vehicles, has a Chinese rival in its rearview.
BYD, or Build Your Dreams, had a surge in its stock price this week after announcing that it anticipated third-quarter profits to more than quadruple compared to the prior year.
Currently, BYD outperforms Tesla in terms of quarterly production and trails it in terms of global sales.
Its success also demonstrates how rapidly China’s auto sector is developing; this year, China surpassed Japan to become the world’s largest exporter.
It’s a ray of hope in the dimly lit Chinese economy, which is suffering from a catastrophic real estate crisis and historically high unemployment.
On the less encouraging side, Beijing’s tensions are also rising with several of the nations that serve as export markets for its electric vehicles (EVs), including the US and the EU.
This is simply another illustration of how challenging it will be for Western nations to reduce their reliance on Chinese imports as the globe transitions to new, cleaner technologies.
How BYD achieved their goals
Unlike automakers who grew to produce electric vehicles, BYD was once a battery manufacturer that later began producing automobiles, giving it an advantage from the outset.
Its CEO Wang Chuanfu, who is currently reputedly worth $18.7 billion, was born in Wuwei County to a farming family in one of the poorest counties in China in 1966. Mr. Wang was raised by his older brother and sister after becoming an orphan as a youngster.
He co-founded BYD with his cousin in Shenzhen in 1995 after receiving degrees in engineering and physical chemistry of metallurgy. The pair gained notoriety as producers of rechargeable batteries that competed with more expensive Japanese imports and are used in cellphones, computers, and other electronics.
In 2002, it went public and started to trade stocks. And it quickly expanded its business by acquiring the faltering state-owned Qinchuan Automobile Company.
At the time, EV technology was still in its infancy, but Beijing officials were looking for a market niche that China could fill. As the government prioritized the generation of renewable energy, subsidies and tax incentives were implemented in the early 2000s.
It was timed perfectly for BYD. The engines that would drive EVs were actually the batteries that company had been producing.
When buying a 10% interest in BYD Auto in 2008, US billionaire investor Warren Buffet predicted that the company will one day overtake all others as “the largest player in a global automobile market that was inevitably going electric.”
He was correct, too. Because of BYD, China now produces the majority of the world’s electric vehicles. Beijing wants to keep that advantage, so in June it gave EV buyers a $72.3 billion tax break spread over four years. This was the biggest incentive at a time when sales were slowing.
Analysts claim that BYD’s original business—batteries—is responsible for its expansion. They are some of the most expensive components in an EV, and BYD may cut costs by producing them on-site. Tesla and its rivals are dependent on third-party producers of batteries.
According to a UBS analysis, “The BYD Seal has a 15% advantage over Tesla’s Chinese-made base Model 3 sedan.”
The Seagull, an entry-level EV from BYD, costs $11,000. The Model 3 sedan, which was recently launched by Tesla, has a starting price of roughly $36,000 in China.
The Chinese corporation also appears to be popular outside the EV industry; early this year, it dethroned Volkswagen of Germany as China’s top-selling car brand.
BYD versus Tesla
When questioned about BYD and Chinese rivals in a 2011 television appearance, Elon Musk laughed. Tesla was still a young publicly traded company at the time, and they had just shown a model of the Model S, the first vehicle they would sell.
Mr. Musk is likely regretting his comments right now. According to recent data from the China Passenger Car Association, Tesla sold 74,073 Chinese-made EVs in September, a nearly 11% decline from the same month last year.
During the same time period, BYD sold 286,903 cars, which is a sharp contrast to this. That represents an increase in EV and gasoline-electric hybrid model sales of over 43%.
Ironically, Tesla is credited with helping EVs become more mainstream in China. Prior to Tesla, green incentives did not persuade buyers to purchase EVs.
According to car expert Ivan Lam of Counterpoint Research, it is still “one of the favorite EV brands in China” and is especially well-liked by younger customers.
China, the biggest auto market in the world, eased regulations to allow foreign companies to fully own production and sales activities there in order to increase the number of EVs sold there. Before then, even to develop a factory in China, businesses like General Motors and Toyota need a local partner.
When that altered, Tesla seized the chance. Even today, Tesla is the second-largest seller of EVs in China and the largest exporter of electric vehicles built in China.
Mr. Musk has grand ideas to increase his presence in China and construct gigantic battery warehouses that would power charging stations and function almost like an EV grid.
He has also focused on India, which is positioning itself as a different challenger to the Chinese market, as tensions between Washington and Beijing rise. Following his meeting with Indian Prime Minister Narendra Modi in June of last year, Mr. Musk declared that Tesla would enter India “as soon as humanly possible.”
Can Chinese EVs win the competition?
run on fuel-burning engines. With the expansion of green incentives to address climate change, analysts foresee a seismic upheaval by 2030.
European and British automakers are finding it difficult to compete. However, apprehension toward China could lead to regulations that restrict Chinese automakers’ access to the European market.
The European Commission has started looking into the possibility of imposing tariffs in order to shield EU manufacturers from a “flood” of imported, less expensive Chinese EVs, which it claims are made possible by Beijing’s subsidies. According to its president Ursula von der Leyen, the EU had not forgotten how China’s “unfair trade practices” had hurt the EU’s solar industry.
But for now, Europe, which is struggling with inflation and energy prices, is a big fan of BYD’s reasonably priced, environmentally friendly vehicles.
The home of Mercedes Benz, BMW, and Volkswagen is having difficulty maintaining its manufacturing of electric vehicles for the worldwide market, as was evident at Europe’s largest auto show in Munich in September, when Chinese EVs were the main topic of conversation.
“Affordability is desired everywhere in the world. That is a universal value statement, according to Mr. Russo.
And right now, he continues, China is the only country in the world that can provide that.