It likes to describe itself as the biggest car brand you've never heard of. Now, China's BYD has overtaken Tesla as the world's
largest seller of electric vehicles. Even if you've never heard of BYD, there's a chance
you've been in one of its busses. While its taxis prowl the streets of some of the world's
biggest cities. But busses and taxis aren’t the reason why BYD has overtaken Tesla. Instead, it's the fruit of long-term
strategic thinking on the part of BYD itself
and the Chinese government. And it’s setting China up to be the dominant global player
in the transportation of the future: electric vehicles, a business that could be worth
$8.8 trillion by the end of the decade. Here are the three most important things
that have made BYD the king of EVs. The Chinese government has played a huge role in BYD's rise. We've arguably never seen anything like
this in terms of the amount of support that China has extended to automakers, specifically pertaining to EVs. Beijing has given an estimated $30 billion
of tax exemptions to the industry since 2010, and may wave a further
$97 billion by 2027. China actually takes a carrot
and stick approach. They set mandatory EV output targets for automakers,
but they also offer cheaper loans and cheaper land
and R&D subsidies to all those EV makers. And BYD has been a massive beneficiary of that. It's still sells most of its
electric vehicles in its home market. But of course, Tesla has also benefited
from Chinese subsidies, which is where the second reason
for BYD’s rise comes in. Most of BYD's cars are simply a lot
cheaper than Tesla's. In fact, it sells ten popular models, starting from less than Tesla's cheapest offering for the Model 3 sedan. And BYD sells a lot more
of the cheaper vehicles in its lineup. They have very cheap models
starting from $10,000. Their approach has been
extremely different in the sense that Elon Musk believed that
you had to sort of start from the high end with a sexy performance car
to get people interested in electric cars and then work your
way down the price spectrum. BYD went at it from the other end
where it was about cheap taxis and busses that needed a heck of a lot of batteries
and really sort of, you know, drove down the prices of the batteries
that they could put into passenger cars. While the average price paid
for a Tesla is about $45,000, the average BYD sells
for roughly half that. That, of course, raises the question,
how can it sell them so cheaply? The secret to that price tag lies in what is known as vertical integration. Our vertical integration capability give us the flexibility,
the faster response to the market trend as well as the better spot for brand developing and customer service. That's a fancy way of saying
that they make a lot of the things that go into
their vehicles themselves. Carmakers usually buy most
components from suppliers such as Bosch, Continental and Aptiv. Volkswagen, for instance, only makes
35% of the parts in its ID.3 electric car. Tesla, meanwhile, makes 68% of the parts that go into its Model 3 made in the US. BYD makes 75% of the parts
that go into the Seal, its flagship model. The most important factor is that BYD is the only automaker that
produces all of its batteries in-house. That was hugely important
during the pandemic when the supply chains were just absolutely in a
state of chaos for the industry. The fact that BYD was in control
of its own destiny gave them a huge leg up over the rest of the industry, and
especially as it pertains to batteries. This is a company
that has been in the battery space since the 1990s. BYD actually stands for Build Your Dreams. It started out in 1995
as a battery company. They make rechargeable batteries
for mobile phones and other electronics products. And then the company
got into the auto business in 2003. Making its own batteries and other
components helps it reduce a lot of costs. That's attracted some big name investors. Call it the continued BYD
promotional roadshow. And investor Warren Buffett brought his buddy Bill Gates
along for the ride here in Beijing. It was fantastic. I’m amazed at the quality of that vehicle. Warren Buffett was one of
the biggest early investors in BYD through his holding company,
Berkshire Hathaway. And the battery technology
might also give BYD a technological edge over some rivals. It uses lithium-iron-phosphate,
which is not only cheaper than other batteries,
it's also packaged a lot more compactly. And chemistry is a core expertise
of founder Wang Chuanfu. He’s sort of the anti-Elon Musk. Wang is a chemist by training
and an engineer. And an anecdote
that one of our reporters was told was that when he was told
he needed to dress up a bit for an investor meeting, he stopped to buy
shirts just sort of off the street. And so he's far from one of the flashier
executives in the auto industry. This has all set BYD up to be
the biggest player in electric vehicles. The question now is whether it can become one of the world's
biggest carmakers full stop. And that means growing outside of China. In 2021, BYD started to step up its global expansion. It started to launch more passenger vehicles across the global markets, including Middle East, Southeast Asia and Europe. It's still a very new entrant
in global markets. The volume contribution
is rising, but still small. Even so, BYD inside three years
has become one of the top-selling EV brands in markets
such as Thailand, Brazil and Australia. It also remains to be seen
whether this company can quickly grow in some of these newer markets that it's entering where it isn't
well-known, it isn't recognized. The two most prominent challenges in
BYD’s global expansion will be first regulatory uncertainties
and second brand awareness. The European Union is investigating
into Chinese EV subsidies. Chinese automakers, they are exporting
more of their EVs into Europe. Because those cars are produced in China
so the production costs are pretty low, which allows the automakers
to set their prices in Europe cheaper than the
European counterparts, which has been very alarming
to the European auto industry. One way around that will be to increase
the amount of local production. Definitely, localization is one of the very important strategy of BYD’s Europe strategy. And so we are considering, we are evaluating different locations in Europe and where we can build the cars. And apart from busses
and trucks, BYD isn’t in the US. The trade tensions
between Beijing and Washington are keeping BYD back and giving them pause
to entering the US market. For years, automotive experts
have predicted established carmaking giants like GM, Volkswagen or Toyota would catch up with Tesla
in electric vehicles. In hindsight, it probably shouldn't be a surprise
that a Chinese rival got there first.
