In 2011, Elon Musk burst out laughing when asked about Chinese competitors in the electric car market. Now he probably regrets it.
Shares of BYD, short for Build Your Dreams, rose sharply this week after the company said it expects profits to double year-on-year in the third quarter of 2023.
BYD has overtaken Tesla in quarterly production and is behind the U.S. manufacturer in global sales.
BYD’s success is also a testament to the pace of development of China’s auto industry, which will overtake Japan to become the world’s largest exporter in 2023.
On the other hand, Beijing’s economic tensions with other nations, not just the U.S. and European countries that are export markets for Chinese electric cars, are also on the rise. The world is increasingly adopting new, cleaner technologies, and this is another example that illustrates how difficult it will be for Western countries to move away from dependence on Chinese products.
How the dream was built Build your dream.
BYD had an advantage from the start: unlike manufacturers that started out making electric models, this company first produced batteries before moving on to cars.
CEO Wang Chuanfu, whose fortune is $18.7 billion, was born in 1966 to a peasant family in one of China’s poorest provinces.
After earning a bachelor’s degree in mechanical engineering and metallurgical chemistry, he and his cousin founded BYD in Shenzhen in 1995. They built a reputation for making rechargeable batteries used in cell phones, laptops and other electronic devices that competed with more expensive Japanese imports.
BYD went public in 2002 and soon diversified by buying struggling state-owned automaker Qinchuan Automobile Company.
In the early 2000s, Beijing introduced the subsidy and tax incentive program and the government began to prioritize renewable energy production.
This was perfect timing for BYD. The batteries it produced effectively became the engines of electric cars.
The Chinese potential was so enticing that in 2008, American billionaire Warren Buffett bought a 10% stake in BYD Auto, saying it would one day become “a major player in the global car market, which will inevitably become electric.”
Today, China dominates global electric car production, thanks in large part to BYD. Beijing is keen to maintain its lead – in June it offered BYD $72.3 billion in tax breaks over four years, the largest subsidy at a time of slowing sales.
Analysts say BYD owes its growth to its start-up business – making batteries. They are the most expensive parts of an electric car, and in-house production allows BYD to save a significant amount of money. Instead, competitors, including Tesla, have to rely on battery suppliers.
That largely explains why the BYD Seal has a 15 percent market advantage over the Chinese-made Tesla Model 3, according to the UBS report. The entry-level BYD Seagull model costs $11,000. Tesla recently introduced the Model 3 sedan, which is priced at $36,000 in China.
And the Chinese company is also on the rise in the global electric car market – it overtook Volkswagen’s best-selling model in China earlier this year.
WORLD vs. Tesla.
In 2011, Elon Musk laughed when asked in a TV interview about BYD and Chinese competition. Back then, Tesla was a young public company and unveiled a prototype of its first electric car, the Model S.
Today, Musk probably regrets looking down on the Chinese. According to the latest figures from the China Passenger Car Association, Tesla sold 74,073 electric cars in September, down nearly 11% from last year.
That’s a development in the opposite direction to BYD, which sold 286,903 vehicles in the same period – a 43% increase in the electric and hybrid car market.
The irony is that Tesla is at the root of the rise in popularity of electric cars in China, the world’s largest auto market.
When Beijing decided to attract more electric cars, it relaxed rules allowing foreign companies to open factories in the country. Until then, companies like General Motors and Toyota needed a local partner to build a factory in China.
When the conditions changed, Tesla immediately took advantage. And today, Tesla is the largest exporter of Chinese-made electric cars and the second-largest selling Chinese manufacturer.
Musk has ambitious plans to expand into China and build huge battery warehouses that will act as a network of electric cars that power charging stations.
However, with tensions rising between Washington and Beijing, he has turned his attention to India, which he sees as an alternative to the Chinese market.
Musk said Tesla will appear in India “as soon as it is feasible” after a June meeting with Indian Prime Minister Narendra Modi.
China’s “dragon” is attacking the realm of giants.
The band for traditional automakers, whose business is still fueled by gasoline engines, is rapidly narrowing, the BBC writes.
Analysts predict a seismic shift by 2030 as “green” incentives to fight climate change expand, driving down prices.
In this competition, carmakers from Europe and the UK are “suffocating”. They could be helped by swift regulation of the European market, which could become less accessible to competitive Chinese manufacturers.
The European Commission has launched an investigation and is examining whether tariffs are needed to protect EU manufacturers from an “invasion” of cheap imported Chinese electric cars because they benefit from Beijing’s subsidies.
Commission chief Ursula von der Leyen said the EU had not forgotten how its solar energy sector had suffered from China’s “unfair trade practices”.
So far, the eco-friendly cars, which BYD sells at affordable prices, have been a big hit in Germany, which is struggling with high inflation and high energy costs. The Chinese are gleefully taking on giants Mercedes-Benz, BMW and Volkswagen as they try to compete in the electric car market.
Bill Russo, founder and CEO of consulting firm Automobility, summed it up simply: “There is a demand for affordability around the world. And the place that can give that to the world right now is China.”