BYD: from being mocked by Elon Musk to surpassing Tesla as the world leader in electric cars

Business modernity runs on the back of legend and the explosion of the Chinese car manufacturer BYD is under the reins of Wang Chuanfu (56 years old).

Born in a small town, orphaned in adolescence, graduated in Chemistry and specialized in battery technologies and founder of a small company thanks to the $300,000 that a friend lent him along with his cousin Lu Xiangyang.

These are the beginnings of a company that began selling battery cells to mobile phone manufacturers Motorola and Nokia in the late 1990s and that this January was revealed to the world as the largest manufacturer of electric cars.

Although in annual terms Tesla continues to be the largest manufacturer of electric vehicles, in the last quarter BYD surpassed it after selling 526,000 units, compared to 484,000 for Tesla.

The company has given a recognizable name to the Chinese wave of zero-emission vehicles that the motor majors already take for granted.

BYD has some similarities with the company that Elon Musk refounded.

In his cover letter he avoids the label of automobile manufacturer and prefers that of a technology company.

Its headquarters are not in Wuhan, the Chinese Detroit, but in the entrepreneurial Shenzhen, the closest thing in the Asian giant to the American silicon valley.

And another similarity is that it is one of those neo-companies that scare the traditional motor industry.

Not only has it surpassed Tesla, it also unseated Volkswagen in 2023 as the automotive market leader in the ultra-competitive Chinese market.

As the consulting firm Sino Auto Insights highlighted when the brand passed Ford for market share in August (2023 has been its year), “if that doesn't set off alarm bells in Detroit, Dearborn, Stuttgart, Wolfsburg, Munich, Toyota, Auburn Hills , Turin, Seoul and the other motor capitals, so we don't know what it will be.”

In 2011, Elon Musk scoffed at the idea of ​​BYD competing with Tesla in a Bloomberg TV interview.

Now, the Chinese carmaker is set to become the world's No. 1 EV maker https://t.co/Ilio0p6mYG pic.twitter.com/EX4mwqbdq7

— Bloomberg (@business) December 27, 2023

The truth is that BYD is more than just a car manufacturer.

One of the obsessions of its president – ​​who is also described as having a Stakhanovite character and the obsession with cost reduction also attributed to other big names in the automotive sector such as Carlos Ghosn (former president of Renault and Nissan) or Carlos Tavares (Stellantis) – is that the group can be as self-sufficient as possible, which is why it has developed businesses around batteries and semiconductors, in addition to entering the rail transport business.

It is this entire set that allowed its turnover to reach 55,000 million euros in 2022 (latest annual data published), almost doubling the figure of the previous year.

In the first three quarters of last year it had already exceeded that income.

“Vertical integration is giving BYD long-term staying power, while smaller rivals that are not yet vertically integrated will be pushed out,” Chuanfu said in a phrase that pointed to prescient in 2022 when he gave an interview to Forbes, in which he also outlined his character: “Do more and talk less.”

The company's problem, perhaps, is in its price, which does not have the resources that Tesla has shown every time it showed a good result.

Its shares are worth about 187 yuan, which gives it a market capitalization of around 69 billion euros.

It is four times more than when it was listed on the stock market in 2019, but it is also well below the 358 yuan at which it was listed in June 2022. The good results of 2023 have hardly had any effects.

good godfather

Despite everything, the stock market has a good godfather who avoids volatility: Berkshire Hathaway, Warren Buffett's investment firm, which 15 years ago bet $230 million to acquire 10% of the group.

The greatest supporter of that investment (which has been partially reduced with significant capital gains) was its vice president, Charlie Munger, whom BYD described as a “mentor” at X when he died last November: “In 2008 we had the honor of receiving his support ( …).

“This historic milestone marked BYD’s first recognition by a top-tier international investment institution.”

Two years after that financial backing, Musk laughed at the brand in a Bloomberg interview: “Have you seen their cars?”

A decade later he corrected the shot and assured that they were one of the most competitive vehicles.

Munger was convinced that BYD would be better than Tesla, but at the moment investors do not recognize it that way.

It is possible that BYD is conditioned by a triad of arguments: the first is that it is not positioned in the monoculture of the pure electric vehicle in which Tesla is located and that it is also using the hybrid car to benefit from the designation of “new vehicle”. energy” that is subsidized by the Chinese State, which offers total sales of three million cars.

The second is that its business still depends a lot on its local market, it exported less than 10% of the three million vehicles it sold in 2023 to 70 countries. And the third is that it has focused on the low-medium segment of the market, which not only makes profitability per vehicle sold difficult under normal conditions, but also complicates it when a price war breaks out like the one that is affecting electric vehicle manufacturers, and which has already left effects on the drop in Tesla's profitability. .

But the company is aware that all that has to change and has set itself the goal of achieving a 10% market share in the global market, leaving aside the United States and Europe.

“It has more potential than Tesla because it has a range of products that work for both emerging and developed markets and BYD has a much more complete catalog, which includes city cars, urban SUVs or sedans,” says analyst Felipe Muñoz, of the specialized consultancy Jato.

After having a good entry especially in the Thai and Indian markets, its biggest bet is now in Indonesia, the largest country in Southeast Asia, where the group plans to invest more than 1,000 million euros to build a factory with initial capacity to assemble 150,000 electric car units and batteries.

He also has plans in Europe.

It has committed to building a factory in Hungary with a capacity similar to that of Indonesia, in one of the first efforts by a Chinese company to locate in the Old Continent.

And an announcement that comes just when the European Commission analyzes possible public aid for the exports of Chinese car manufacturers.

A few years ago, Chuanfu acknowledged that he saw two Chinese resources as the way to grow: labor and the extensive market.

He has served her until now, but it seems that it is no longer enough.

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