It’s a racing car that very few observers have seen arrive. And especially not the analysts of the EV Volumes database, which serves as a reference in the sector. In a study published in 2021 on the evolution of car manufacturers’ market shares in electric vehicles by 2025, this information center predicted that the American Tesla would mark time slightly in favor of the German Volkswagen and of the main global brands. In 11th place, the Chinese BYD was only credited with 377,000 sales.
Missed ! In 2022, the Middle Kingdom manufacturer sold 911,000 vehicles equipped with batteries, to which are added rechargeable hybrid models. With a total of 1.86 million copies sold, it has become the world’s No. 1 clean car, beating Tesla (1.31 million units).
A visionary entrepreneur
BYD Auto, the new Chinese automobile flagship, was born from the vision of a chemical engineer and expert in electric accumulators. Very early on, Wang Chuanfu was able to perceive the prospects for the development of this type of product in China. At 29, the teacher-researcher embarks on his own adventure and convinces his cousin to invest alongside him. In February 1995, he set up his rechargeable battery company, Build Your Dreams, in Shenzhen (southern Guangdong province). Dubbed China’s Silicon Valley, the city concentrates new technology companies: BYD supplies telephone and computer manufacturers and quickly becomes the country’s largest producer.
On the lookout for new outlets, Wang Chuanfu is eyeing the automotive sector, whose potential he senses. In January 2003, he seized an opportunity. The arms and industrial machinery conglomerate Norinco is seeking to get rid of a subsidiary in bad shape, called Qinchua. But the local government is fighting to save jobs and keep the car factory. Wang Chuanfu buys the small manufacturer in Shaanxi (north-east) for a handful of yuan, receives a large piece of land for free and obtains loans at derisory rates. In the process, he bought a molding factory at the gates of Beijing, then set up a research and development center in Shanghai.
His goal ? Become less expensive than foreign brands, but better made than local brands. Under his guidance, BYD engineers dissect the competition, reproduce the best assemblies, improve components. To control costs and quality, Wang Chuanfu chooses to integrate everything up to the manufacture of parts and engines. A visionary, the entrepreneur even invested in the country’s largest lithium mine in 2010. Tesla did not buy his own in Nevada until ten years later. And, above all, the Chinese innovate. BYD will be the first in the world to offer a plug-in hybrid car with great autonomy, in 2008. A feat that earned it the spotting of the American billionaire Warren Buffet: the latter acquired 10% of its capital through his investment fund. Berkshire Hathaway investment. In 2010, it launched its first 100% electric model on the market.
Fierce competition
Driven by the government’s financial incentive policy which encourages the acquisition of clean engines, BYD sells more new energy vehicles than thermal ones from 2019. And abandons the latter in the spring of 2022. The competition with Tesla is then than fiercer.
The Californian manufacturer was born the same year as its Chinese competitor. Twenty years later, Elon Musk’s company makes half of its global production and more than a third of its sales in China. In the meantime, the country has become the world’s largest car market and the No. 1 in electrics. Tesla could not do without it. From 2013, he marketed his Model S there. But imports are heavily taxed.
On January 7, 2019, the American firm launched the construction of a huge factory in Shanghai, called Gigafactory in reference to its size and the gigawatt-hours of the batteries. With a feat: he gets a government that has always drastically protected its industry to stand alone in control. “Tesla benefited from a 2018 law ending the obligation to have a Chinese partner holding at least 50% of the capital”, explains Christophe de Charentenay, president of M@air, specialist in carbon-free mobility.
In addition, he settled in a free zone. Tesla’s first factory outside the United States is built in record time: six months for an initial capacity of 450,000 vehicles per year. From February 2020, an extension is launched and it increases to 750,000 units per year. The following year, the American inaugurated its research and development center in Shanghai. He is now looking for a location for a second factory and is due to open a design center in Beijing in the coming months, whereas he only had one in the world for all of his markets, in Los Angeles. (California). An essential anchor to adapt to the taste of Chinese customers.
Yet despite this production race, Tesla is struggling. At the end of 2022, BYD makes it bite the dust. Sales of the American fall by 44%, even as demand explodes after the government’s decision to end ten years of subsidies. To counter its tumble, the manufacturer is announcing a 13% discount, after several price adjustments in 2022.
Tesla, a damaged reputation in China
This earthquake causes a double aftershock. The first is a spiral of discounts by local players, who are not all strong enough. When Tesla generates a net profit of 9,574 dollars (8,969 euros) per vehicle, Xpeng or NIO show negative values. BYD, he does not fall into the trap of the big sale and protects its margin. The second shock comes from the fury of customers who bought just before the announcement, going so far as to vandalize certain stores such as in Chengdu (Sichuan province). The protesters are demanding 100,000 kilometers of free electric charging, two to four years of extended warranty, lifetime access to driver assistance software which requires a subscription…
By yo-yoing with its Chinese prices, Tesla has altered its premium image and damaged its reputation. According to the Chinese Consumers Association, it is even number 1 in customer dissatisfaction. Tesla Vice President Grace Tao has tried to justify the lower prices by the end of the pandemic in the country which stabilizes the supply chain.
“Mastering the supply chain has been decisive over the past three years and has changed the Chinese automotive landscape, explains Shengyun Lu, partner at Artefact, a consulting and data collection firm. Before, there were three main segments in this market. : large foreign joint ventures, traditional Chinese manufacturers and newcomers like NIO or XPeng, positioned in premium. But there has been a profusion of brands in this sector and a dispersion of sales that is detrimental to their profitability.” With the Covid crisis and then that of microprocessors, manufacturers suffered, and so did the major Western brands. “The latter react slowly, their decision-making is often cumbersome, continues the expert. They are unable to adapt to demand, by offering very large screens like BYD or Tesla. They do not understand that customers today consume the car like a telephone, they need entertainment technology and a constant renewal of models.”
During these three years, BYD and Tesla have gained a lot thanks to their strategy. “The American manufacturer was able to manufacture cars adapted to the market at a phenomenal speed. Its factory is one of the most modern in the world, the rate of production is very high there, explains Shengyun Lu. For its part, BYD was able to seduce the younger generation who favor screens and on-board entertainment over engine power and mechanical performance, and who no longer perceive Chinese products as low-end products.” Incidentally, in November 2022, BYD introduced its luxury brand Yangwang.
From now on, the Chinese manufacturer is attacking Europe where it is seeking to set up a factory. In sight: Sweden, Norway, the Netherlands, France, the United Kingdom and Germany, where the rental company Sixt has already placed an order for 100,000 vehicles. The race between the two electric champions has only just begun.