The Chinese car manufacturer BYD had one of the largest stands at the IAA in Munich in 2023.
Arjun Kharpal | CNBC
BYD was not wiped out. Instead, BYD dethroned Tesla as the leading electric vehicle maker in the fourth quarter, selling more battery-powered vehicles than its U.S. rival.
“Their goal was to become China's largest automaker and popularize manufacturing in China,” Taylor Ogan, CEO of Snow Bull Capital, said of BYD's long-standing ambitions.
How did the Chinese company that started out making phone batteries become an electric car giant?
While BYD is now known as an electric car giant, its tentacles extend into many areas from batteries to mining to semiconductors, which is a big reason for its success.
Chemist Wang Chuanfu founded BYD in 1995 in the southern city of Shenzhen, China's vast technology hub. It was founded with 20 employees and capital of 2.5 million Chinese yuan, or $351,994 at today's exchange rate.
In 1996, BYD began producing lithium-ion batteries like those used in our modern smartphones. This coincided with the growth of mobile phones. BYD supplied its batteries to Motorola and Nokia, two of the giants of the mobile phone industry at the time, in 2000 and 2002 respectively.
In 2002, BYD was listed on the Hong Kong Stock Exchange, riding the wave of success in lithium-ion batteries.
It wasn't until 2003 that BYD acquired a small automaker called Xi'an Qinchuan Automobile.
Two years later, the company launched its first car called F3, which was an internal combustion model. And then in 2008 the company released the F3DM, its first foray into the world of electric vehicles. The F3DM was a plug-in hybrid electric vehicle.
That same year, Warren Buffett's Berkshire Hathaway invested $230 million in BYD.
This gave a boost to BYD's electric car ambitions.
BYD continued to push into the electric vehicle space and this is where its history as a battery manufacturer came into play. In 2020, the company launched the Blade battery, which many believe helped propel BYD's growth in electric vehicles.
It is an LFP or lithium iron phosphate battery. According to Ogan, many battery manufacturers at the time turned away from LFP batteries because they believed they had poor energy density, meaning they were too heavy for the amount of energy they could deliver.
But BYD praised the Blade as a breakthrough that offers good energy density and a high level of security. The company committed to incorporating this into its Han, a sporty sedan that launched in 2020 and was considered a competitor to Tesla's Model S. BYD then incorporated the Blade into the subsequent models it brought to market.
“The energy density at the cell and pack level was actually higher than what BYD originally envisioned… Everyone was blown away,” Ogan said.
BYD sold 130,970 pure battery electric vehicles in 2020. Last year, the company sold 1.57 million battery electric vehicles.
The Blade breakthrough underscores why BYD is successful in electric vehicles – strategic investments and the fact that the company is in more business than just cars.
“BYD has made a name for itself as a supplier in the high-tech space and strengthened its resilience by supplying batteries to hard-to-please companies like Apple,” Tu Le of Sino Auto Insights told CNBC.
“Wang Chuanfu then had the wherewithal to acquire a failing local Chinese automobile brand and was able to focus on innovation in battery technology to the point where the company was able to sell it to other automakers. As if that wasn't enough, they had to constantly fight at full strength to improve the design, technology and quality of their own vehicle fleet. We didn’t know it at the time, but everything it has done over the last 15 to 20 years has prepared it to surpass Tesla in the fourth quarter of 2023.”
Wang Chuanfu, chairman and president of BYD.
Mai Tse | South China Morning Post | South China Morning Post | Getty Images
At the beginning, BYD did not directly enter pure electric vehicles. The company continued to sell hybrid cars, which Canalys analyst Alvin Liu said was key to BYD's initial success.
“In the early stages of China's electric vehicle market, BYD chose to launch battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) at the same time. This strategy allowed BYD to capture the market when charging infrastructure was not yet well established and users were not entirely clear about the benefits of electric vehicles,” Liu told CNBC.
“PHEV characteristics such as high efficiency and freedom of range have contributed significantly to BYD being able to conquer the market.”
Liu said BYD has positioned itself in the mid-range market, where there are fewer competitors in China, which has contributed to the company's growth. Liu said BYD has done a good job on branding and created different sub-brands to address different price points in the market. One such example is BYD's mid- to high-end electric vehicle brand Denza.
In addition to BYD's own tactics, its rise has also been aided by the Chinese government's tremendous support of the country's electric vehicle sector. In recent years, Beijing has offered subsidies to incentivize electric car purchases and offered government support to the industry. These measures began around 2009 when BYD wanted to strengthen its electric mobility offensive.
Rhodium Group estimates that BYD received about $4.3 billion in government support between 2015 and 2020.
“BYD is a highly innovative and adaptable company, but its rise has been inextricably linked to protecting and supporting Beijing,” Rhodium senior analyst Gregor Sebastian told CNBC. “Without Beijing’s support, BYD would not be the global powerhouse it is today.”
“Over time, the company maintained below-market equity and debt financing, which enabled it to increase manufacturing and research and development activities.”
After dominating the Chinese electric vehicle market, BYD is now aggressively expanding abroad. The company sells cars in a number of countries, from the United Arab Emirates to Thailand to the United Kingdom
In Southeast Asia, BYD has a 43% electric vehicle market share. However, BYD's international expansion is not just about selling cars, but also about manufacturing and materials.
BYD announced in December that it would open its first European production plant in Hungary. In addition, the company also wants to purchase lithium mining assets in Brazil. Lithium is an important component of BYD's batteries.
But as the world expands, it also comes under scrutiny from governments concerned about the subsidies that Chinese automakers have received.
In September, the European Commission, the executive arm of the European Union, opened an investigation into subsidies given to electric vehicle manufacturers in China.
Meanwhile, the US is trying to boost its own domestic electric vehicle sector through the Inflation Reduction Act, with the aim of keeping out Chinese competitors.
“Initiatives like the IRA and the EU anti-subsidy investigation are aimed at hindering China’s progress in these markets,” Rhodium’s Sebastian said.
“To ensure sustainable growth, BYD is proactively addressing these policy hurdles, as demonstrated by its recent investment in an electric vehicle factory in Hungary, underscoring its commitment to global expansion.”
The battle between Tesla and BYD – the world's two largest electric vehicle manufacturers – is expected to continue. Sino Auto Insights' Le said he believes BYD still hasn't “reached its maximum potential.”
“For a long time, most automotive companies didn’t take them seriously. “Part of their journey mirrors Tesla’s because people didn’t take Tesla seriously in the early days either,” Le said.
As for Tesla, the company faces tougher competition in 2024 as Chinese rivals release more models and traditional automakers try to catch up in the electric vehicle race.
Daniel Roeska, senior research analyst at Bernstein Research, told CNBC that there won't be a major driver of sales volumes in Tesla's auto portfolio in the coming months. BYD, on the other hand, could see faster growth.
“BYD, on the contrary, is really going full throttle… accelerating growth in Europe and other overseas markets. And so there will certainly be a lot more growth in the BYD story in the next 12 to 24 months,” said Roeska.
Tesla's Musk has realized that he shouldn't take BYD lightly. In a comment posted in X in response to a video of his 2011 Bloomberg interview, Musk said: “That was many years ago. Their cars are highly competitive these days.”