BYD electric vehicles at a motor show in Munich in September. Leonhard Simon/Getty Images
When China's BYD recently overtook Elon Musk's Tesla as the global leader in electric vehicle sales, casual observers of the auto industry may have been surprised.
But what has surprised other automakers around the world is something different about BYD, which is backed by Warren Buffett's Berkshire Hathaway: its low prices.
“Nobody can compete with BYD on price. Period,” Michael Dunne, CEO of Asia-focused auto consultancy Dunne Insights, told the Financial Times. “Boardrooms in America, Europe, Korea and Japan are in shock.”
One reason BYD is able to keep its costs low is because it owns the entire supply chain of its electric vehicle batteries, from raw materials to finished battery packs. This is important because a battery accounts for about 40% of the price of a new electric vehicle.
Although BYD cars are not yet commonplace on American roads, many experts believe it is only a matter of time, despite the high tariffs that are keeping them at bay for now. Currently, US-made electric vehicles are subject to a 25% tariff, which is in addition to a 2.5% tariff on imported cars.
But if BYD or other Chinese automakers came in with a $20,000 car, Dunne said, despite the high tariffs, they would still be in a “good position,” considering the average price of a new car in the U.S This year approximately at about $10,000 is $48,000.
BYD launched an electric vehicle called Seagull in China last year at an unbeatable price of about $11,000, where it quickly became one of the best-selling electric vehicles. “But especially abroad, the electric vehicle could be a truly disruptive force,” wrote UK-based market research firm Autovista Group.
According to Portal, BYD's Dolphin hatchback already costs $33,000 in the UK, which is almost 30% less than the starting price of VW's rival ID.3.
But BYD plans to export significantly cheaper models to markets around the world, including Europe, South America and Southeast Asia. And over the past three years, China's exports of electric vehicles have increased 851%, the New York Times reported in October.
As for the US, BYD could enter from south of the border. According to FT, the company is looking for locations for a new production facility in Mexico.
Mexico has a free trade agreement with the USA and Canada. In November, House Democrats warned that Chinese giants like BYD would “gain a back door into the US market” through its southern neighbor.
Last year, Ford Motor Chief Executive Bill Ford Jr. warned that American automakers were “not quite ready” to compete with Chinese rivals in electric vehicles. “They evolved very quickly, they developed it on a large scale and now they are exporting,” he told CNN. “They’re not here, but we think they’ll come here eventually.”
BYD also has the advantage of its founder and CEO Wang Chuanfu, a tireless cost-cutter who the late Charlie Munger — Buffett's longtime partner at Berkshire — described in one of those final interviews last year.
On the Acquired podcast, Munger said Wang could look at someone's role in the morning “and by the afternoon he could do it.” I've never seen anyone like that… He's a natural engineer and a get-it-type production manager. Done,” and that’s a great talent to have in one place.”
He added: “The guy at BYD is better at actually making things than Elon.”