How BYD went from a cell phone battery maker to an EV giant competing with Tesla

BYD was not wiped out. Instead, BYD sold more battery-powered vehicles than its U.S. rival, dethroning Tesla as the top EV maker in the fourth quarter.

“Their goal was to become China’s largest automaker and put Chinese manufacturing on the map,” Snowbull Capital CEO Taylor Organ said of BYD’s long-held ambitions. .

So how did this Chinese company that started out making cell phone batteries grow into an electric vehicle giant?

BYD is now known as the electric vehicle giant, but its tentacles have extended into many sectors, from batteries to mining to semiconductors, which is a big reason for its success.

Chemist Wang Chuanfu founded BYD in 1995 in the southern Chinese city of Shenzhen, a large technology hub in China. It was founded with 20 employees and a capital of 2.5 million Chinese yuan ($351,994 at current exchange rates).

In 1996, BYD began manufacturing lithium-ion batteries, the type used in today’s smartphones. This coincided with the growth of mobile phones. BYD continued to supply batteries to Motorola and Nokia, two of the mobile phone industry giants at the time, in 2000 and 2002, respectively.

In 2002, BYD rode the wave of lithium-ion battery success and went public on the Hong Kong Stock Exchange.

BYD acquired a small automaker called Xi’an Qinchuan Automobile in 2003.

Two years later, the company launched its first car, a combustion model, called the F3. In 2008, it launched the F3DM, its first foray into electric vehicles. The F3DM was a plug-in hybrid electric vehicle.

That same year, Warren Buffett’s Berkshire Hathaway invested $230 million in BYD.

This further accelerated BYD’s electric vehicle ambitions.

BYD continued to expand into the EV field, and its history as a battery manufacturer was born here. The company launched its Blade battery in 2020, which many claimed was the catalyst for BYD’s EV growth.

LFP or lithium iron phosphate battery. At the time, Organ said, many battery manufacturers were moving away from LFP batteries due to the perception that they had a low energy density, meaning they were too heavy for the amount of energy they could provide.

However, BYD touted the Blade as a breakthrough product that offers superior energy density and a high level of safety. BYD has promised to equip the Han, a sporty sedan launched in 2020 that is seen as a rival to Tesla’s Model S, and subsequent models launched by BYD will also feature the blade. did.

“The energy density at the cell level and at the pack level was actually higher than what BYD originally announced…everyone was surprised,” Organ said.

BYD sold 130,970 pure battery electric vehicles in 2020. Last year, the company sold 1.57 million battery-powered EVs.

The Blade’s rise underscores why BYD’s success in EVs is due to strategic investments and the fact that it has much more to offer than just cars.

“BYD has established itself as a high-tech supplier and has become more resilient by supplying batteries to hard-to-please companies like Apple,” Sino Auto Insights’ Tu Le told CNBC. .

“Wang Chuanfu then had the funds to buy a bankrupt local Chinese car brand and was able to focus on innovating battery technology enough to sell it to other automakers. If that wasn’t enough, they continued “We kept our heads down and kept grinding.” “We improved the design, engineering, and quality of our vehicles. We didn’t know this at the time, but all the work we’ve done over the past 15 to 20 years has , we were able to surpass Tesla in the fourth quarter of 2023.”

Initially, BYD did not suddenly enter the pure EV market. Canalys analyst Alvin Liu said the company still sells hybrid cars, which was the key to BYD’s early success.

“At the early stage of China’s EV market, BYD chose to launch battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) at the same time. “We were able to win in a market where EVs weren’t very popular, and users weren’t very clear about the benefits of EVs,” Liu told CNBC.

“PHEV’s characteristics of high economic efficiency and range-free range played a key role in BYD’s market victory.”

Liu said BYD positioned itself in the mid-range market with few competitors in China, which fueled the company’s growth. According to Liu, BYD has been successful in branding and has created various sub-brands to cater to different price points in the market. BYD’s mid-to-high-end EV brand Denza is one example.

In addition to BYD’s own strategy, the Chinese government’s extensive support for the country’s EV sector also helped the company make the leap. Over the past few years, the Chinese government has provided subsidies to encourage buyers of electric vehicles and provided state support to the electric vehicle industry. These measures began around 2009, when BYD was trying to ramp up its EV push.

Rhodium Group estimates that BYD received approximately $4.3 billion in state aid between 2015 and 2020.

“BYD is a highly innovative and adaptable company, but its rise is closely tied to the protection and support of the Chinese government,” Rhodium senior analyst Gregor Sebastian told CNBC. “Without the support of the Chinese government, BYD would not have become the global powerhouse it is today.”

“Over time, the company enjoyed below-market equity and debt financing, which allowed it to expand production and research and development activities.”

BYD, which has dominated China’s EV market, is currently actively expanding its business overseas. We sell cars in many countries from the United Arab Emirates to Thailand to the United Kingdom.

In Southeast Asia, BYD has a 43% market share in electric vehicles. But BYD’s international expansion isn’t just about car sales, it’s also about manufacturing and materials.

BYD announced in December that it would open its first manufacturing plant in Europe in Hungary. The company is also considering purchasing lithium mining assets in Brazil. Lithium is a key component of BYD’s batteries.

However, as the company expands globally, it has also come under increased scrutiny from governments concerned about the subsidies that Chinese automakers receive.

In September, the European Commission, the European Union’s executive arm, launched an investigation into subsidies given to Chinese electric car makers.

Meanwhile, the US is trying to shore up its domestic EV sector through anti-inflation laws aimed at crowding out Chinese competitors.

“Efforts like the IRA and the EU anti-subsidy investigation are aimed at hindering China’s progress in these markets,” Rhodium’s Sebastian said.

“To ensure sustainable growth, BYD is proactively addressing these political hurdles, as seen with its recent investment in an EV factory in Hungary, underscoring its commitment to global expansion. ing.”

The battle between Tesla and BYD, the world’s two largest EV manufacturers, will continue. Sino Auto Insights’ Le said he believes BYD has not yet “reached its full potential.”

“Most car companies didn’t take Tesla seriously for a long time. In that respect, some of their steps mirror Tesla’s steps, because in the early days people didn’t take Tesla seriously either. That’s because they didn’t take it seriously,” Lee said.

As for Tesla, the company will face increased competition in 2024 as Chinese competitors launch more models and traditional automakers try to catch up in the EV race.

Daniel Loeska, senior research analyst at Bernstein Research, told CNBC that there are no factors that will significantly impact sales of Tesla’s car portfolio in the coming months. BYD, on the other hand, is expected to grow even faster.

“BYD, on the contrary, is really pushing the pedal to the metal by accelerating its growth in Europe and other overseas markets. So the BYD story is definitely going to grow even bigger in the next 12 to 24 months. “I guess so,” Loeska said. .

Tesla’s Musk knows he shouldn’t have taken BYD lightly. “That was years ago. Their cars are very competitive these days,” Musk said in a comment posted on X in response to a video of a 2011 Bloomberg interview.