In late 2011 a fresh-faced Elon Musk could not contain a chuckle at the idea that Tesla could ever be challenged by Chinese carmaker BYD: “Have you seen their car?”
“I don’t think it is particularly attractive,” he explained on television then. “The technology is not very strong. And BYD, as a company, has pretty severe problems on their home turf.”
A decade on, the Shenzhen-based company led by Wang Chuanfu has claimed Tesla’s crown as the biggest producer of battery-powered cars. In the fourth quarter of 2023, BYD, which was founded in 1995 and counts Warren Buffett’s Berkshire Hathaway as a shareholder, sold a record 526,000 battery-only EVs to Tesla’s 484,000.
“Four to five years ago no one would have thought that Chinese EVs would have the quality or reliability to compete,” said Tu Le, founder of Sino Auto Insights, a Beijing consultancy.
BYD’s ascent adds further glory to the rags-to-riches legend of Wang. The story of the professor in nonferrous metals research turned hard-headed executive with a fastidious focus on technology, supply chains and cost- cutting has become gospel in Chinese science and business schools.
To his employees, Wang is simply known as “The Chairman”. Both revered and feared, the 57-year-old billionaire’s unassuming demeanour belies a micromanager with a Stakhanovite work ethic.
“The work-life balance concept is just not in his lexicon,” said Michael Dunne, chief executive of Asia-focused car consultancy Dunne Insights.
In 2008, Charlie Munger convinced his business partner Buffett to invest $230mn for a 10 per cent stake in the then little-known Chinese company, arguing that in Wang they had a mix of Thomas Edison and Jack Welch, the former General Electric chief. Berkshire has since sold a 2 per cent stake for $890mn. Its remaining holding is worth about $2.3bn.
BYD’s net profit more than doubled to Rmb21.37bn ($3bn) in the first nine months of 2023, compared with the same period a year earlier. Its share price has soared more than fivefold since the start of 2020, giving it a market capitalisation of Rmb622bn.
While Munger was impressed with Wang’s engineering skills, experts attribute BYD’s success largely to a ruthless culture of cost-cutting. The entrepreneur had instituted “absolutely aggressive cost control”, said Christoph Weber at Swiss software group AutoForm.
Steeped in lessons from making mobile phone batteries and other components for Siemens, Nokia and Motorola in its early years, BYD has developed its own in-house capabilities. Contracting other companies for hardware or services is a last resort, so much so that an executive once told car reviewers the company made everything on the vehicle “except the tyres and the windscreen”.
The emphasis on cost has underpinned the group’s vertical integration, from supplies of resources to batteries and computer chips. As one of the world’s top battery makers it supplies rivals including Tesla and Toyota.
This has resulted in manufacturing innovations. In one example, in BYD’s early days, Wang acquired a panel-stamping tool from Jeep in Beijing. This led the company to crack “cell-to-body” technology, which sandwiches together the EV battery cell with a car body.
Wang’s unforgiving business model has led to complaints about worker treatment. By splitting manufacturing into “finer and finer steps”, Weber said, individual workers only carry out very narrow tasks. This means there is greater propensity to replace staff with cheap workers. “They basically treat people like robots,” he said.
Its battery-only vehicles have trumped Tesla in the fourth quarter, but taking into account plug-in hybrid vehicles — which China defines as “new energy vehicles” alongside pure battery- and hydrogen-powered models — BYD overtook Tesla in the first half of 2022. BYD’s total sales for 2023 were up 62 per cent to more than 3mn vehicles, compared with 1.81mn for Tesla.
In an era when China’s ruling Communist party frequently cracks down on the nation’s business elite, experts believe that Wang, a proponent of high-tech products that help achieve Beijing’s carbon emission reduction goals, is on relatively safe ground.
In a rare endorsement, President Xi Jinping in his annual new year address on Sunday noted that Chinese-made “new energy vehicles” showcased “China’s manufacturing prowess”.
BYD’s battery technology has for several years been taught as part of the curriculum at the elite Tsinghua University in Beijing. High school students now learn about the Tang, BYD’s plug-in hybrid SUV, as part of their physics lessons.
Despite Musk’s earlier derision, BYD has been on some car executives’ radar for a few years. In 2021, then-Volkswagen chief Herbert Diess told the Financial Times that the Chinese group was the company the German automaker feared most.
Yet BYD’s recent rise has surprised many in the industry. This is partly because growth accelerated during the Covid-19 pandemic, when China’s borders were shut.
It was Musk’s own decision in late 2022 to chase higher volume in China through price cuts that gave BYD a recent boost. “If I’m shopping on value, BYD has got five models that are cheaper [than Tesla]. And they’re newer,” said Bill Russo, former head of Chrysler in China and founder of advisory firm Automobility.
Having conquered the Chinese market, Wang is now setting his sights on foreign shores. In November BYD management told Citigroup analysts they aimed for a market share of about 10 per cent in overseas markets excluding the US or Europe in the long term. That implies annual overseas sales — outside of two crucial western markets — of 2mn-3mn cars, up from about 240,000 this year, according to Citigroup.
Meanwhile, the group’s prospects in the US and Europe remain uncertain. In Brussels, fears of a wave of Chinese-made cars have led the European commission to probe Beijing’s industrial support as well as boost its own local subsidies.
Anti-China sentiment in Washington has percolated into the minds of US consumers. While Chinese carmakers are not barred from selling vehicles in the US, they face a 25 per cent tariff and cannot receive EV subsidies available to other manufacturers through the Inflation Reduction Act, which excludes “foreign entities of concern”, which includes China.
Chinese carmakers need to find a way into North America, the world’s second-largest car market, if they want to maintain growth and keep Chinese factories filled, Dunne said. They “really genuinely need the access”, he said. “They understand that doing that by sitting back in China is not an option.”
However, Chinese car companies including BYD are mostly unproven outside of their home market. “Their business model is contingent on state subsidies,” said Jorge Guajardo, a former Mexican ambassador to China and now a partner at Dentons Global Advisors.
A big test of this would be the company’s plans to build its first European car factory in Hungary.
“State subsidies are usually also contingent on them producing locally . . . you lose all those advantages once you take the operation outside of China,” Guajardo said.
Experts also point out that Tesla remains a formidable competitor in a fast-growing global market. The US carmaker reported fourth-quarter sales beating analyst forecasts and $7bn in net profit for the first nine months of last year. Its market capitalisation stands at $754bn.
Instead, the question many are asking is whether any other EV makers can compete with the economies of scale boasted by Tesla and BYD. In China — the world’s biggest car market — BYD and Tesla soak up 43 per cent of electric vehicle sales.
“Tesla need not worry too much,” said Dunne. “Everyone else who builds cars should be gripped by panic.”
Additional reporting by Wang Xueqiao in Shanghai and Hudson Lockett in Hong Kong
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