China’s BYD Adopt A Conservative Approach Toward The US In Its Global Expansion Strategy 

BYD, the Chinese electric vehicle (EV) giant, is embarking on a rapid global expansion to compete with Tesla, but for the time being, it is stuck in the slow lane on its rival’s home turf.

While BYD has not fully articulated its global ambitions in public, four sources familiar with BYD management’s thinking said that a concerted global push has become the single most important strategic focus for China’s largest EV maker.

Besides a drive into some European markets already underway, BYD spent much of last year conducting a study on how to set up a U.S. distribution network for its latest electric models, two of the sources said.

The study was described as advanced and serious, with specific recommendations from Detroit-based consultancy Urban Science on how many outlets BYD would require in each state and city, as well as formats for the brick-and-mortar stores.

A BYD official said that momentum was building toward an announcement at this year’s global CES tech show in Las Vegas, where BYD planned to showcase a new generation of battery electric vehicles (BEVs) and plug-in hybrids for the US market.

The announcement never materialized.

Tense relations between Washington and Beijing, anti-China sentiment in the US, and President Joe Biden’s decision to prioritize domestic production of EVs and batteries all pushed BYD to take a break, according to one of the sources.

According to the source, BYD’s management has yet to give the project the final go-ahead, and aggressive U.S. expansion is unlikely in the near future.

“BYD is taking a cautious approach to the U.S.,” the person said. “Think about all the U.S.-China political tensions and then think about the craziness of the whole world now. You don’t want to jump into a big mess.”

The Biden administration’s Inflation Reduction Act (IRA), which imposes rules on where to source battery materials and disqualifies EVs produced outside North America from a $7,500 purchase rebate, complicated BYD’s U.S. project.

BYD, which stands for Build Your Dreams, was the world’s largest seller of BEVs and plug-in hybrids in 2022, with 1.86 million sales, the vast majority in China and far ahead of Tesla’s 1.3 million total.

BYD still trails Tesla by nearly 400,000 fully electric vehicles, but the Chinese company is planning to ramp up sales quickly at home and abroad, having increased BEV sales by 184% in 2022 over the previous year.

To be sure, BYD is not the only Chinese automaker limiting its ambitions in the United States due to the geopolitical environment and Biden’s efforts to promote domestic production.

CATL, the Chinese battery giant, has slowed its plans to invest in battery plants in the United States and Mexico, citing concerns that IRA rules on sourcing materials would raise its costs.

HAAH Motors Holdings of the United States attempted to import cars designed by China’s state-owned Chery Automobile and developed plans for a U.S. factory that would bring jobs to the country.

However, the two pulled the plug in 2021 when HAAH could not raise enough funds to proceed, citing concerns about US tariffs and trade tensions.

BYD has been manufacturing electric buses in the United States for many years, supplying cities such as Los Angeles and Long Beach from a factory built a decade ago in Lancaster, California.

However, when it comes to EVs, BYD’s leaders, including Chairman Wang Chuanfu, were aware as recently as five years ago that their vehicles were not ready for the global market due to quality and other flaws, according to two sources.

They have since reversed their decision.

BYD has stormed into a commanding lead in China, leveraging its latest range of electric cars such as the Han sedan and the Tang crossover, and has made inroads into other markets beginning with Norway in 2021 and now including Australia, the United Kingdom, Brazil, Costa Rica, Germany, Japan, Mexico, and Singapore.

BYD is betting on lower costs than most competitors to eventually overtake the world’s largest carmaker, Japan’s Toyota, as EVs become the preferred mode of transportation.

BYD, which is backed by Warren Buffett’s Berkshire Hathaway, is aiming for more than 3 million car sales worldwide in the medium term, according to two sources.

LMC Automotive, a global consultancy, believes that selling more than 3 million vehicles before 2030 is not out of the question, though most sales would still take place in China.

According to LMC, BYD’s ability to offer a full range of globally appealing and reasonably priced full EVs in mainstream and premium markets validated its sales ambitions.

BYD’s prospects, according to Zhang Wei, founder of Yuanhao Capital Management and BYD’s tenth largest shareholder as of the first quarter of 2022, should be even better.

He told Reuters that the 3 million target would be reached by 2025, and that BYD would be able to sell 10 million vehicles per year by the early 2030s.

Zhang, who began amassing a sizable stake in BYD in 2015, told Reuters that he likes the company because its chairman has created the type of vertically integrated, cost-competitive electric carmaker that Elon Musk is still striving for.

Unlike many competitors, BYD can meet the majority of its battery and EV system requirements on its own. According to Zhang, it sources key battery materials in part from its mines in China and manufactures its own batteries and semiconductors, including the power-management chips that are critical components in EVs.

“Other than windshields and tires, they can make on their own just about everything in the car. They have their own construction company that helps build factories. That’s how they can speed things up,” he said. “I would say BYD at this point is already better positioned than Tesla in the EV era.”

According to two Toyota officials who live near Toyota’s joint R&D center with BYD in Shenzhen, BYD’s product development costs 20% to 30% less than Toyota’s.

“The high level of vertical integration in its battery supply chain gives it a clear cost advantage over similar carmakers, an enabler for rapid expansion both within and outside of China,” LMC analyst Al Bedwell said.

Despite the fact that BYD is taking a cautious approach to the US market right now, the sources say the company will likely focus on the US car market in the long run.

“America is going to be a key, key part of this global push strategy,” one said.

(Adapted from ThePrint.in)

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