The Biggest Car Brand You’ve Never Heard Of
It likes to describe itself as the biggest car brand you’ve never heard of. Now, China’s BYD has overtaken Tesla as the world’s largest seller of electric vehicles. Even if you’ve never heard of BYD, there’s a chance you’ve been in one of its busses. While its taxis prowl the streets of some of the world’s biggest cities. But busses and taxis aren’t the reason why BYD has overtaken Tesla. Instead, it’s the fruit of long-term strategic thinking on the part of BYD itself and the Chinese government. And it’s setting China up to be the dominant global player in the transportation of the future: electric vehicles, a business that could be worth $8.8 trillion by the end of the decade.
The Chinese Government’s Role in BYD’s Rise
The Chinese government has played a huge role in BYD’s rise. Beijing has given an estimated $30 billion of tax exemptions to the industry since 2010, and may wave a further $97 billion by 2027. China takes a carrot and stick approach, setting mandatory EV output targets for automakers while offering cheaper loans, cheaper land, and R&D subsidies to all those EV makers. BYD has been a massive beneficiary of this support, positioning itself as a key player in the Chinese market.
Affordable Vehicles at the Core of BYD’s Success
Most of BYD’s cars are a lot cheaper than Tesla’s. In fact, it sells ten popular models starting from less than Tesla’s cheapest offering for the Model 3 sedan. BYD’s approach is focused on affordability, starting with cheap taxis and busses that needed a lot of batteries. This strategy helped BYD drive down the prices of batteries, making their electric vehicles more accessible to the mass market. While the average price paid for a Tesla is about $45,000, the average BYD sells for roughly half that.
Vertical Integration and Battery Control
BYD’s vertical integration capability gives them the flexibility and faster response to market trends. They make a lot of the components that go into their vehicles themselves, including batteries. In fact, BYD is the only automaker that produces all of its batteries in-house. This vertical integration has given BYD a significant advantage, especially during the pandemic when supply chains were disrupted. BYD’s control over its own destiny allowed it to outperform competitors and maintain a steady supply of batteries.
From Battery Company to Global Automaker
BYD, which stands for Build Your Dreams, started out in 1995 as a battery company. It then entered the auto business in 2003, leveraging its expertise in battery technology. Making its own batteries and other components has helped BYD reduce costs and attract big-name investors, including Warren Buffett through his holding company, Berkshire Hathaway. BYD’s battery technology, using lithium-iron-phosphate, not only reduces costs but also allows for more compact packaging.
Global Expansion and Challenges
In 2021, BYD started to step up its global expansion, launching more passenger vehicles across global markets, including the Middle East, Southeast Asia, and Europe. However, BYD faces challenges in its global expansion. Regulatory uncertainties and brand awareness are the two most prominent challenges. The European Union is investigating Chinese EV subsidies, and BYD’s entry into the US market is slowed down by trade tensions between Beijing and Washington.
The Future of BYD
For years, automotive experts predicted that established carmaking giants like GM, Volkswagen, or Toyota would catch up with Tesla in electric vehicles. However, it shouldn’t come as a surprise that a Chinese rival, BYD, got there first. BYD’s strategic approach, support from the Chinese government, affordable vehicle lineup, vertical integration, and battery control have propelled it to become the biggest player in the electric vehicle market. The question now is whether BYD can become one of the world’s biggest carmakers overall, extending its success beyond China and navigating the challenges of global expansion.