How the automotive giant captured the Chinese electric car market
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Almost no one knew about BYD 20 years ago. Its logo was carefully hidden under the bodies of Nokia and Motorola mobile phones. Now it is an automobile giant that has captured the Chinese electric vehicle market and is ready to conquer Europe and the United States.
Strange purple color. Uneven painting. Poor door fit. A design that screams cheapness and savings. Like a Toyota Corolla, but with an unknown sign on the bumper.
All this is about the first BYD model, which was taken to car dealerships in 2007. “They were the laughing stock of the industry,” recalls Michael Dunn, an analyst of the Chinese auto market.
Based on the results of 2023, “a laughingstock” overtook Tesla for electric vehicles sold worldwide – 3 million versus 1.84 million.
Yes, of these 3 million, about 1.6 million are hybrid cars, while Elon Musk’s American corporation produces exclusively electric vehicles. But soon, experts are sure, BYD will overtake its competitor in this category. After all, until recently, BYD sold its cars almost exclusively in China. But in 2022, the company began to actively increase exports to other Asian countries, and in 2023 it prepared a springboard for conquering Europe and the USA. The company’s first own ship, BYD Explorer No. 1, will arrive in the Netherlands this week, with 5,000 electric vehicles on board. And recently the company announced that it intends to build a plant for the production of electric vehicles in Mexico.
It took BYD 29 years to become one of the world leaders in the automotive industry. At the same time, Tesla largely contributed to this. And BYD’s path to success began with batteries.
Creator of your own destiny
The founder of BYD, Wang Chuanfu, was born in one of the poorest provinces of the country, in the family of a carpenter who died of cancer when the guy was 13 years old. Two years later, my mother also died. He was raised by his brother and half-sister.
Chuanfu believed that he and his loved ones could get out of the whirlpool of misfortune and poverty if he received a decent education. And Wang became the best student in the area. In the year of graduation, he was the only one to enter the university. This event was celebrated by the entire village.
In 1983, Wang entered the Central South University of Mining and Metallurgy in Changsha. After graduating, Wang went to get a master’s degree at the Beijing Non-Ferrous Metals Research Institute. And it is precisely this that can be considered BYD’s alma mater.
After completing his master’s degree in 1990, Wang Chuanfu remained to work at the institute. And soon he received the position of deputy director of the Research Institute of Non-Ferrous Metals, becoming at the age of 26 the youngest director in the history of the institute.
While still at the institute, Wang noticed an emerging trend – the transition of Japanese manufacturers from nickel-cadmium to nickel-metal hydride and lithium-ion batteries, but their production in Japan itself was expensive. Wang figured out how to set up their production in China for much less money. And he left for Shenzhen, where, together with his brother, in 1995 he founded the company Yadi Electronics, named after the street on which the office was located. Later, the brothers added Bi to the name at the beginning – just so that their company would be as high as possible in the lists of participants in various exhibitions. Then from this name the abbreviation BYD was born and the slogan known to car enthusiasts today is Build Your Dream.
Dream foundation
Wang Chuanfu began building his dream by replacing automated production in the Japanese battery production model with manual labor. The cost of such labor in China was much lower than in Japan. As a result, with productivity ten times inferior to Japanese companies, BYD achieved battery costs five to six times lower than those of its competitors. This attracted customers.
In 2000, BYD became the first Chinese supplier of lithium-ion batteries to Motorola. Two years later – for Nokia. Considering that at that time these were the dominant players in the global mobile phone market, signing contracts with them meant global recognition of the young company.
It wasn’t just the production of lithium-ion batteries that was successful. By July 2002, BYD became the global market leader in nickel-metal hydride batteries with a 65% share.
Dominating the battery market was just the beginning of Wang’s dream company. Also in 2002, BYD Electronics appeared, a manufacturer of mobile phone components and their assembler. It will later be separated into a separate company.
And in January 2003, Wang Chuanfu finally entered the automobile market. It was very difficult to do this. Even then, there were 28 automakers in China. The authorities, who did not want further uncontrolled growth in their number, allowed new players to enter the market only through the acquisition of existing automobile companies. And Wang Chuanfu decided to buy the Qinchuan Automobile Plant from the state-owned conglomerate Norinco. This is how BYD Auto was born.
Together with the plant, BYD also received the car model it produced – Flyer. Also in 2003, a mold production plant was purchased in Beijing and a design office was created in Shanghai. He was to develop BYD’s first own model – BYD F3, mass production of which was launched in 2005. This was the same copy of the ninth generation Toyota Corolla that experts made fun of.
However, its competitors did not laugh at BYD for long. The Chinese car market was growing very quickly, and the cheap F3 was popular among the population.
If in the first full year of sales (2006) about 55 thousand cars of this brand were sold, then already in 2008 the BYD F3 became the best-selling model in China and held the market leadership until 2012. And if in 2005 BYD Auto brought about 10% of revenue to Wang’s conglomerate, then in 2009 it became the main source of income.
In the first years, BYD Auto didn’t bother with design at all, but simply took old Toyota and Honda models, installed older Mitsubishi engines, and stuck its logo on the bumper. The consumer was satisfied. Why buy the Japanese original if there is a much cheaper domestic copy?
But Wang Chuanfu himself was not going to stop there. BYD Auto was preparing a revolution.
Hybrid success
On September 27, 2008, Warren Buffett invested in BYD through a subsidiary of his investment fund Berkshire Hathaway. The American billionaire bought 225 million shares of the Chinese company at eight Hong Kong dollars each. At that time, his stake in BYD was about 10% and cost $230 million.
Buffett’s decision was related to the Chinese company’s promises to soon transfer people, including Americans, to electric cars. Back in 2006, at the Beijing Auto Show, BYD presented its first electric car – an electric version of the F3 with a range of 300 km. The company expected to launch mass production by 2010. But China itself was not ready for a breakthrough. The country simply lacked infrastructure. The project was canceled.
Instead of an electric car, BYD has prepared another wonder for the car market. The BYD F3DM hybrid car was presented in Geneva in March 2008.
It became the world’s first hybrid car to reach mass production. This model appeared on the market in 2010.
But the Chinese car market changed after the global financial crisis, and BYD’s previous business model, based on selling cheap copies of Japanese brands, no longer worked. On the one hand, the welfare of Chinese citizens, who could afford more expensive cars, grew. On the other hand, the authorities took several measures at once that had a negative impact on BYD’s position. Thus, the mayor’s office of Beijing, China’s largest municipal market, in 2011 reduced the production of license plates by two-thirds, and, accordingly, the quota for registering new cars in the region. Moreover, numbers began to be distributed to citizens based on the results of the lottery. And since getting a license plate for a car is a great success, then attaching it to a budget car is akin to a crime, consumers thought. In addition, back in December 2010, the Chinese government curtailed two programs to encourage citizens to buy a car. One applied to cars with small engines, and the second to residents of rural areas. Both are key elements of BYD’s business model.
BYD’s business has gone downhill. At the end of 2011, the company recorded the first annual drop in sales in its history – by 12%. BYD managed to return to the sales level of 2010, the last in the pre-crisis era, only in 2013, but this was followed by an even more impressive drop – already by 19% at the end of 2014. Investors and analysts wondered: Will BYD survive? The company needed a reboot.
Electric revolution
Wang realized that the company could continue to rely on the budget segment of the market, but the group’s line of models was simply outdated. In the new realities, BYD had to produce cars that would be no worse than foreign ones both in quality and in appearance.
The first step towards the rebirth of the company was the appointment in 2016 of Wolfgang Egger as chief designer, who made a name for himself in the world of luxury cars such as Alfa Romeo, Audi and Lamborghini, but also managed to work at Seat, which focused on budget city cars. models. BYD launched the Dynasty line, which, both externally and internally, was not much inferior to Western and Japanese competitors.
Things started to improve for the company. But until 2020, BYD made profits largely due to government subsidies: authorities encouraged the transition to electric vehicles to reduce climate damage.
During these same years, Wang himself, who holds a degree in non-ferrous metallurgy, began experiments to reduce the cost of producing batteries for electric vehicles. In particular, he came up with the idea of replacing nickel, cobalt and manganese with cheaper iron and phosphate. But the company’s first batteries, made from inexpensive chemical compounds, discharged quickly and had to be recharged much more often than industry-standard counterparts.
This problem was resolved by 2020. It was then that BYD introduced its own battery for electric vehicles – Blade. They were much cheaper than traditional batteries, and their power reserve was no different.
And in the same year, Tesla came to China, launching its first plant outside the United States. And this not only allowed Tesla to begin selling electric vehicles en masse in China, but also generally spurred demand for electric vehicles among Chinese consumers.
And BYD’s sales began to grow rapidly – at a pace that the company has not seen since the launch of its first model: 75% at the end of 2021, about 130% at the end of 2022. With almost 1.8 million electric vehicles sold (both hybrid and electric), BYD has not only conquered China, but become the world leader in this segment. In 2023, the Chinese manufacturer will overtake Tesla for the second year in a row.
Thus, a laughingstock from the 2007 Beijing Auto Show, who once only dealt with batteries for mobile phones, became a world leader in the automotive industry, and an orphan from a remote Chinese village became one of the richest people in China.
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