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BYD's ATTO 3 model will be exhibited in Munich on September 4, 2023
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BYD overtook Tesla to become the world's largest electric car maker in the last quarter of 2023.
The Chinese company sold a record number of cars last year, including 525,409 battery electric vehicles (BEVs) in the three-month period ended December 31, according to a stock exchange filing. Tesla said Tuesday that it delivered 484,507 vehicles during the quarter, also a record.
For the full year, Elon Musk's Tesla (TSLA) still overtook BYD and sold 1.8 million electric cars. BYD sold 1.57 million electric vehicles, up 73% from 2022, as well as 1.44 million hybrid vehicles.
But that means Tesla's gap to its Chinese competitor was significantly narrower, with around 230,000 units in 2023 than the 400,000 units in 2022.
BYD's rapid growth, backed by Warren Buffett, is emblematic of China's emerging electric vehicle industry.
China is making rapid progress The transition to electric vehicles is successful thanks to strong government support for the industry. And its automakers are rushing into Europe to the alarm of traditional rivals like Volkswagen and Renault. EU politicians have launched an investigation into China's state subsidies.
Beijing has set a goal for at least 20% of new cars sold annually in China to be new energy vehicles (NEVs), which include BEVs, plug-in hybrids and hydrogen fuel cell vehicles, by 2025. By 2035, according to the government, NEVs should become the “mainstream” of new car sales.
The first target was achieved in 2022, about three years earlier. The second could also be achieved sooner than expected.
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BYD cars wait to be loaded onto a ship at the international container terminal at the port of Suzhou in China's eastern Jiangsu province, September 11, 2023.
In the first 11 months of 2023, 8.3 million units of new energy vehicles were sold, accounting for more than 30% of total car sales, according to data from the China Association of Auto Manufacturers released last month.
Miao Wei, former minister of China's Ministry of Industry and Information Technology, said at an auto forum in November that the government's NEV penetration target of 50% by 2035 would likely be achieved by 2025 or 2026 at the latest, according to state media.
Analysts say China's leading role in global industry is also due to its market size, cheap labor and supply chain dominance.
“China is now a leader in manufacturing and expanding its competitive advantages by relying on its huge domestic market and first-mover advantage,” analysts at Natixis Asia, a French investment bank, wrote in a report in late November.
Its first-mover advantage and government support through infrastructure investments and subsidies have made it easy for Chinese electric vehicle makers to expand at home and abroad, they said.
However, increased competition and a brutal price war over the past year have hurt the profit margins of many automakers.
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An aerial view of Tesla's Gigafactory on March 29, 2021 in Shanghai, China
As China's economy lost momentum, automakers feared a decline in demand. In January, Tesla cut prices in China to attract customers and curb slowing growth, sparking a price war. Dozens of automakers followed suit to stay competitive.
The price war has driven up sales but threatened the profitability of the entire industry. In the first 11 months of last year, China's auto industry recorded a profit margin of just 5%, which is lower than the 5.7% in 2022 and the 6.1% in 2021, according to figures released by the Chinese Passenger Car Association, a government-backed industry group.
To offset the slowing domestic market, Chinese automakers are seeking growth outside the mainland by expanding in Europe, Australia and Southeast Asia.
BYD sent a large delegation to an auto show in Germany last September. A spokesman said at the time that the company wanted to double the number of dealer partners in Europe by 2023 and was targeting foreign sales of 250,000, up from about 56,000 in 2022.
Last month, the company announced it would build an electric vehicle factory in Hungary, which would be its first passenger car plant in Europe. It already has a bus factory in Komárom, Hungary.