2023-12-27 16:03:29
Bloomberg — “China’s BYD Co. bills itself as the biggest car brand you’ve never heard of.” You may soon need a different slogan.
The automaker is poised to overtake Tesla Inc. as the new global leader in all-electric vehicle sales. When that happens, likely in the current quarter, it will be both a symbolic turning point for the electric vehicle market and further confirmation of China’s growing influence in the global auto industry.
In a sector still dominated by more familiar names such as Toyota Motor Corp., Volkswagen AG and General Motors Co., Chinese manufacturers including BYD and SAIC Motor Corp. are making significant inroads. After overtaking the United States, South Korea and Germany in recent years, China now rivals Japan for global leadership in passenger car exports. About 1.3 million of the 3.6 million vehicles shipped from the continent as of October this year were electric.
“The competitive landscape of the auto industry has changed,” said Bridget McCarthy, head of China operations at Shenzhen-based hedge fund Snow Bull Capital, which has invested in both BYD and Tesla. “It’s no longer about the size and legacy of automotive companies; it’s about the speed at which they can innovate and iterate. “BYD started preparing a long time ago to be able to do this faster than anyone thought possible, and now the rest of the industry has to race to catch up.”
The approval of the EV sales crown also reflects the shift in competitive dynamics between Tesla’s Elon Musk, the world’s richest executive, and BYD’s billionaire founder Wang Chuanfu.
While Musk has been warning that not enough consumers can afford his electric vehicles at such high interest rates, Wang is firmly on the offensive. His company offers a half-dozen higher-volume models that cost far less than Tesla charges for its cheapest Model 3 sedan in China.
When a Tesla owners club shared a clip in May of Musk laughing at BYD cars during an appearance on Bloomberg Television in 2011, Musk responded that BYD vehicles are “highly competitive these days.”
The likely shift in the global pecking order of electric vehicles marks the realization of a goal that Wang, 57, put off when China was just beginning to ramp up its now world-leading electric car industry. While BYD continues to distance itself from Tesla and all other car brands in the country, replicating its runaway success abroad is proving difficult.
Europe appears set to join the United States in imposing higher tariffs on Chinese car imports to protect thousands of manufacturing jobs. Other countries’ electric vehicle markets are still in their infancy and not as lucrative. Management sees the United States as virtually out of reach due to rising trade tensions between Washington and Beijing.
Wang is no Musk: He avoids social media and largely stays out of the spotlight. But in an unusually brash speech delivered weeks before the European Union opened an investigation into how China has subsidized its electric vehicle industry, Wang declared that the time had come for Chinese brands to “demolish the old legends” of the automotive world. .
While many car buyers outside of China are still barely aware of BYD’s existence, Warren Buffett surely isn’t. In 2008, Berkshire Hathaway Inc. invested about $230 million for a nearly 10% stake in the Chinese automaker. By the time Berkshire began reducing its stake last year (BYD stock was trading near its all-time high), the value of its stake had soared roughly 35-fold to around $8 billion.
Berkshire’s late vice chairman Charlie Munger viewed BYD primarily as a battery pack. On Bloomberg TV in May 2009, he said the company was working on “one of the most important issues affecting man’s technological future.” Munger’s family had invested in the company years before Berkshire, and he told an interviewer weeks before his death in November that he had tried to discourage Wang from entering the auto business.
BYD acquired a bankrupt state-owned automaker in 2003 and introduced its first plug-in hybrid, called F3DM, in 2008. A New York Times reviewer criticized its exterior design, calling the compact “about as modern as a vintage-era Toyota Corolla.” Y2K.” The company sold all 48 units in the first year.
Around that time, China began subsidizing the purchase of electric cars. Government support extended from cities and provinces to the national level, encompassing tax breaks for consumers, production incentives for manufacturers, help with research and development, and cheap land and loans.
As a rare automaker that also made its own batteries, BYD was in a unique position to benefit. Before entering the automotive business, it was the first Chinese lithium-ion supplier to Motorola and Nokia in the early 2000s. To ramp up production before consumers adopted electric vehicles, the company focused on automotive segments. that would need many cells. Its first electric bus was launched shortly after the F3DM.
“BYD was a miracle,” Munger told the Acquired podcast in an episode that aired in October. He called Wang a genius, said he kept the company from going bankrupt by working 70 hours a week and described him as a fanatical engineer. “The BYD guy is better than Elon at doing things,” he said.
About a decade and a half into making cars, BYD had mustered the intelligence to reduce plug-in car prices to levels comparable to those of combustion-engine vehicles. But their lineup still lacked good looks.
In 2016, the company hired Wolfgang Egger as head of design, a role he previously held for Audi and Alfa Romeo. He also attracted other international executives, including Ferrari’s head of exterior design and a prominent Mercedes-Benz interior designer.
When China invited Tesla to build the country’s first automobile plant wholly owned by a foreign entity, BYD was no longer resigned to making simple econoboxes. Now its most expensive model, the Yangwang U8 sport utility vehicle, costs 1.09 million yuan ($152,600).
While the level of government subsidies has played a role in the tremendous growth of electric vehicles in China, Paul Gong, head of China auto research at UBS Group AG, believes the most important factor is the level of competition it has generated. this support.
“They have to work on innovation, they have to try to find what consumers really want and they have to optimize their costs to make sure their electric vehicles are competitive in this highly competitive market,” Gong said. After taking down a BYD Seal sedan and finding a 25% cost advantage over traditional competitors, his team concluded that Chinese manufacturers are likely to own a third of the global car market by the end of the decade.
For now, Tesla still outperforms BYD in key metrics including revenue, revenue, and market capitalization. Bernstein analysts expect some of those gaps to close considerably next year: They project Tesla will generate $114 billion in sales to BYD’s $112 billion.
Wang grew up as the second youngest of eight siblings in the impoverished village of Wuwei in eastern China’s Anhui province. His parents died when he was a teenager and his older siblings supported him throughout his high school and college education.
During the early years of his working life, Wang resided in Beijing, where he worked as a mid-level government researcher on rare earth metals critical to batteries and consumer electronics. He founded BYD in 1995 in Shenzhen with the help of a loan of nearly $300,000 from a friend. He is now worth $14.8 billion, according to the Bloomberg Billionaires Index.
Wang has racked up air miles in 2023, crisscrossing the globe between auto shows, new market launches and meetings with heads of state. He has landed in countries such as Japan, Germany, Vietnam, Brazil, Mexico and Chile, a travel agenda befitting the leader of a company that has established itself in some 60 countries and territories in just the last two years.
Analysts expect BYD to launch its third-generation electric vehicles next year, offering more technology such as automated driving capabilities. That’s one area where BYD falls short with its more affordable products against startups like Nio Inc. and Xpeng Inc. Even as the number of auto rivals in China has shrunk from more than 500 to around 100, they remain new entrants emerging, including well-financed companies. Technology giant Huawei Technologies Co.
When Bloomberg News asked Wang in March whether BYD had aspirations to be as big as Toyota, which in 2023 will be the world’s best-selling automaker for the fourth consecutive year, he said the development of the electric vehicle industry will lead to a reorganization of the industry. .
“The performance of an automobile company will depend on its technology and its response,” he said. “BYD in China’s electrification is the winner for now, but we can’t say for sure how it will go tomorrow. But we will take advantage of our advantages and continue making good products.”
But staying at the top will require a different mindset than getting there, said Yuqian Ding, head of China auto at HSBC Qianhai Securities Ltd..
“When you become number one, the mandate suddenly changes,” he said. “You are going to redefine yourself, you are going to have to find a way to improve yourself.”
Read more at Bloomberg.com
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