BYD Auto

The rise of China's largest electric vehicle manufacturer highlights the success of the country's strategy to dominate strategic industries vital to climate goals.

Based in Shenzhen, China, BYD Auto is the largest electric car manufacturer in the world, selling over 3 million fully electric and hybrid battery vehicles in 2023 and recording a revenue of over $80 billion. Although Tesla sold more fully electric cars in 2023, BYD has only a small overseas presence and expects to sell over four million vehicles in 2024. Its parent company was founded as a battery manufacturer in 1995 by Wang Chuanfu, but in 2003 he decided to diversify into automobile manufacturing, partly as a response to the development of Japanese hybrid cars. BYD’s parent company continues to be influential in the battery market, making laptops, phones, electric bikes, and backup storage, but has also branched out into semiconductor and solar panel manufacturing. 

BYD Autos' enormous growth since the beginning of the decade comes not only from significant state support but also from building a range of attractive vehicles. A desire amongst Chinese elites to reduce dependence on oil (China imports over 70% of its oil, and 2023 saw imports at a record 11.3 million barrels a day) and changing attitudes in the Chinese government towards emissions have also factored into favorable conditions for EV manufacturers. BYD has evolved dramatically from its beginnings when the CEO personally smashed the prototype of the company's first car to producing luxury vehicles that compete with the latest Tesla models. This transformation has propelled Chuanfu to amass a fortune worth over $47 billion. While BYD is the largest car manufacturer in China, it does not currently meaningfully compete in exports to Europe, which is dominated by Chinese-manufactured Teslas, SAIC Motors/MG, and Geely/Volvo models, although it aims to capture 5% of the EU EV market by 2025.

While the company is building factories worldwide to manufacture its vehicles, tensions between China and Western nations over Taiwan, industrial espionage, and economic decoupling raise the question of whether BYD can expand significantly outside China and how much that would affect the company. Out of the 3 million vehicles BYD manufactured in 2023, only 15,000 were sold in Europe, and the company does not sell any cars into the lucrative US market at all. Whether BYD can break into Western markets or not raises significant questions for Western automobile manufacturers and Governments who wish to reduce emissions from transport. If they can, this may increase European reliance on Chinese manufacturing, potentially restricting European foreign policy.

Beginning with Batteries 

Electric vehicles (EVs) are powered by batteries, typically 40% of the cost of an EV. BYD (although the name supposedly stands for Build Your Dreams, this is a marketing rebrand, and the initials stood for the name of the road where the first office was located) began in 1995 as a battery manufacturer. Wang Chuanfu, who founded the company, graduated with a bachelor's degree in metallurgical physical chemistry in 1987 before going on to study for a MA in materials from the Beijing General Research Institute of Nonferrous Metals. While working as a deputy director, he worked closely with foreign companies, including those from Japan. Battery technology at the time was led by Japanese firms, who were working on moving from nickel-cadmium batteries to nickel–metal hydride and lithium-ion batteries, which were less prone to leaking and had higher energy density and efficiency. In 1993, he quit his role at the research institute and moved to Shenzen.

Wang Chuanfu with then Governor Arnold Schwarzenegger in 2004.

After Deng Xiaoping had concluded his tour of southern China in 1992, opening the door to capitalism in Communist China, Shenzhen was a center of entrepreneurship. Chuanfu had left his job to move to Shenzen and start BYD with a 250,000 RMB loan from his cousin, Lu Xiangyang. Initially, the 20-person company worked on producing batteries similar to those produced by Japanese companies for small consumer products. As many Chinese companies operated, BYD would acquire foreign products, tear them to pieces to understand how they worked, and manufacture similar products with the cheaper labor and fixed costs available in a country with a GDP per capita of $610 in 1995. Exemplifying how committed Chuanfu was to understanding how foreign manufacturers produced superior products, Chuanfu once had his engineers break down his personal Mercedes S-class car.

Only two years after Chuanfu founded the company, the Asian financial crisis broke out, offering BYD an opportunity to market its cheaper batteries to a wider range of buyers as companies such as Sanyo, Panasonic, and Phillips struggled with the downturn and battery prices dropped as much as 40%. However, BYD’s rechargeable batteries were not just carbon copies of foreign-designed batteries. After stripping down the products they acquired, Chuanfu and his engineers worked to improve the designs and refine their production process. By the beginning of the millennium, western companies such as Dell were buying BYD’s batteries not just because of their price but also because of their efficiency and quality. 

Chuanfu’s model of following Japanese technological development and improving designs led to the creation of BYD Auto. In 1997, Toyota released the Prius, a hybrid battery/petrol engine car made famous to the world as the ubiquitous Uber car. At the time, China’s automobile industry was decades behind Japanese and Western car manufacturers, and many Chinese industrial conglomerates wanted to sell off their auto manufacturing businesses as Chinese consumers sought Western cars, but in 2002, Chuanfu saw a risky opportunity to get into car manufacturing and acquired Qinchuan Automobile. Qinchuan was owned by the China North Industry Corporation, traditionally an arms manufacturer, who had an agreement with Suzuki to produce its models under license, but the agreement had been broken off, and China North Industry Corporation wanted to get rid of it. Chuanfu acquired Qinchuan for around $30 million USD (2003 exchange rate), rebranding the company as BYD Auto. At this time, Warren Buffett noticed the company and its founder, leading Berkshire Hathaway, to eventually invest in BYD for a 10% share for $225m. Buffett values company owners who care about the businesses they own and are willing to consume their own products - Buffett himself drinks five cokes a day and bought 6% of the Coca-Cola company between 1987 and 1994. Chuanfu seemingly also believes his product is good enough to drink - in 2008, he drank battery fluid from a lithium-ion battery manufactured by BYD.

The first car BYD produced was a complete disaster. It was ugly, poorly made, and the model's fate was destruction at the hands of Chuanfu himself, who smashed the car to bits in front of the engineers who had produced it. However, reckoning the model that had worked in batteries would also work for cars, Chuanfu persevered, and BYD acquired molds, engines, and other parts, reverse-engineered them, and began to build its “own” cars. 1.5 and 1.8L Mitsubishi engines powered the first BYD F3 4-seater sedan cars, but later generations had their own BYD-produced engines that were strikingly similar in performance and engineering to Mitsubishis. Until the second generation of BYD vehicles, you could easily mistake a BYD car for a Toyota, so similar was the design. 

A BYD model (F3DM)

In 2008, the first hybrid BYD model (F3DM) was released in China. BYD Auto acquired the batteries from its parent company, sowing the seeds of vertical integration that would allow it to achieve a significant cost advantage over its competitors. Average prices for lithium-ion EV batteries were over $1000 per kWh in 2007 but had dropped to $410 in 2014. As a battery manufacturer with cheap labor, BYD could leverage its batteries to reduce the prices of its cars while improving the quality, ride, and look. Its car sales increased from 101,665 units to 429,946 over this time. 

Subsidies   

It would be wrong to imagine this was a free market miracle. In 2009, Wang Chuanfu attended the China Automotive Industry International Forum, where Chinese standards for EV car batteries were being discussed. Over the following years, BYD provided input and analysis for setting battery regulatory standards and developing a relationship with the Chinese state. Chuanfu himself has attended the National Peoples Congress, the Chinese legislature. While this 3000-member body has little real power, that being held in the Central Committee of the Chinese Communist Party and its Chairman, Xi Jinping, membership of the congress means becoming a state cadre. In the cadre system in China, this confers a leadership position within the party and means local police cannot investigate individuals without a serious reason to do so. For the wealthy, this protects their business interests. For the party, this allows them access to the expertise and connections of their loyal cadres and means their advice on steering the country towards industrial plans can be sought. Like semiconductors, shipbuilding, intermittent renewables, and other strategic industries, the PRC maintains a close relationship with local elites in order to pursue strategic economic goals that support foreign policy aspirations. 

Learning from the Russian invasion of Ukraine, the PRC is now wary of how significant the damage can be from Western sanctions being imposed in response to aggressive actions. The PRC aims to make Western nations unable to detach themselves economically if they choose to mount an invasion of Taiwan. As an example of how Chinese industrial strategy overlaps, BYD has purchased seven Chinese-made car transporters capable of shipping 7000 cars to foreign markets. In the event of a Taiwanese invasion, roll-on-roll-off transporters can also be used to move armored vehicles, munitions, and troops. 

Promoting battery manufacturing and EVs has been a part of Chinese Five Year Plans since the 11th plan was announced in 2006 but was further emphasized in 2012 under a sector-specific goal. The Chinese state supports consumers switching to EVs via subsidies for consumers to purchase EVs and hybrid cars (China has reportedly spent over $22 billion from 2014-2022 on EV subsidies). Chinese provinces and cities mandate switches to electric buses and taxis, almost all manufactured by Chinese firms. Cheap land and financing are also reportedly made available to strategic sectors, with industrial land ten times cheaper than residential land. However, China does not consider this a subsidy but rather a revenue-raising measure for local government. Subsidies for BYD Auto, listed as “grants were provided for autos and auto-related expenses” in filings to the Hong Kong Stock Exchange, totaled 1.8 billion RMB ($250 million) in 2023 (although “subsidies” are disputed by BYD). While these numbers are dwarfed by the revenues brought in by selling cars, they have partially contributed to some financial stability for the firm and allowed it to offset the cost of research and investment. 

A BYD K bus in Shenzen

However, the Chinese state also subsidizes battery manufacturers separately. Shenzhen-based Contemporary Amperex Technology (CATL), the largest battery manufacturer in China, received $400m in the first half of 2023 alone. Like BYD, CATL manufactures batteries for EVs, supplying Audi, Ford, Tesla, BMW, and Volkswagen. 

CATL had a revenue of $56 billion and a profit of over $6 billion in 2023. It is projected to increase its annual output of batteries in GWs from 390GW in 2022 to 670GW by 2025, resulting in little opportunity for start-up Western companies to compete without heavy subsidies, which would not be guaranteed to result in a competitive product. Lithium refining facilities, necessary to produce EV batteries, can take up to five years to build, but an Australian facility, partially Chinese-owned, took closer to seven to actually produce any lithium. CATL has said they are targeting a 50% reduction in their battery costs in 2024 alone in an attempt to take their market share, which currently stands at 37%, even higher. (BYD is the second largest at 15.8%). South Korean-based LG Energy Solutions is the only non-Chinese firm with more than 10% market share. There are no US or European-based EV manufacturers with any meaningful market share. 

American and European car manufacturers have little choice but to source the batteries for their EVs from Chinese, South Korean, and Japanese firms. Chinese companies have a 56% share of the EV battery market, which is increasingly composed of lithium iron phosphate batteries. Although some Chinese companies have opened facilities in the US and EU (one factory in Hungary is due to open in 2026), these moves are as much about making any potential switch away from Chinese companies more painful as they are about lowering the logistics costs of shipping cars from China. 

Tariffs

While ongoing support does little to change BYD’s current bottom line, it has allowed the company to develop world-beating EV technology shielded from market forces. Due to this, the European Union has opened an investigation into the effect subsidies and other state support have had on BYD’s ability to produce cars at such a price discount compared to its competitors, with the threat of tariffs being imposed on its cars sold in the European Union.  It has been reported these tariffs could be as high as 30%, but independent analysis suggests they would need to be as high as 50% to make the European market totally unattractive to BYD and other Chinese EV manufacturers. Although BYD does not currently sell cars into the US market due to Trump-era tariffs, President Biden has used Trump-era powers in the US to launch an investigation into Chinese car makers and potentially impose further penalties. 

If the EU chooses to enforce tariffs on Chinese-manufactured cars, this could impact the continental desire to move away from internal combustion cars and meet lowered emissions targets. The EU aims to have 80% of cars sold by 2030 as EVs, an ambitious target as only 12% of new cars were EVs in 2023. Coupled with high electricity costs, the prospect of pure EV cars totally dominating European highways may remain a dream. While hybrid vehicles may appeal more to consumers, these are not totally emissions-free, complicating plans to move to a zero-emissions world. The second-hand market for EVs and BEVs is also plagued by uncertainty over the selling quality, with depreciation values difficult to gauge due to the variability of EV battery quality. 

Although BYD does sell many hybrid vehicles, depending on how painful the tariffs are on their cars, consumers may not be inclined to buy them, and with BYD making more profit on its EVs (making around €14,000 on a BYD Soul EV) selling BEVs to Europe will be less profitable and therefore less desirable for the company. However, although European carmakers produce EVs, which are crucial for the desire to lower emissions radically, these cars are still dependent on batteries and rare earth metals produced by China, which owns 40% of the world's cobalt reserves and significant amounts of lithium. 

There are further concerns regarding Chinese car sales to Western nations. Intelligence agencies have warned that Chinese vehicles could be used to collect data on Western motorists, as well as logging visits to sensitive sites. Given that BYD has remotely shut down its vehicles in China, some British politicians have warned that this scenario could also play out even if Western countries decide to take the economic pain and support Taiwan, causing utter chaos on roads.

Conclusion  

BYD has emerged as a truly global competitor in the EV market in the last ten years, albeit with steady state support. While many Chinese firms did little to adapt the technology they were building for consumers, Wang Changfu’s technical expertise helped underpin the innovations in battery technology that has been so crucial to BYD’s success. Inside China, the company has made large contributions in reducing the emissions of personal transport, although this has been offset by continued growth in fossil fuel emissions fueling voracious Chinese economic growth. Coal consumption does not look set to reduce despite expert forecasts. If European countries are set on reaching their 80% EV market share by 2030, they will have to use Chinese-made EVs, BEVs, and batteries. 

Leaving aside the specifics of BYD’s potential contribution to future European transport needs, the drive to move to emissions-free cars will be dependent on China, one way or another. This has considerable security concerns - if a war were to break out over Taiwan, it is questionable if Europe could afford to repeat its sanctioning of Russia after that country invaded Ukraine, even before the continent moves to rely more heavily on China for cars, steel, intermittent renewable infrastructure, and rare earth metal production. 

BYD is part of the overall strategic vision to render Western and European countries (in particular) less able to object to the PRC’s foreign policy ambitions. Although this is unlikely to be successful in manufacturing cutting-edge semiconductors, it appears to have been successful in manufacturing the supply chain for parts essential to EVs and building multiple companies capable of providing the cheapest EVs.