The Journal. - How China's BYD Overtook Tesla

Episode Date: January 25, 2024

A few years ago, the founder of Chinese automaker BYD was worried the company might not survive. But last year, BYD surpassed Tesla to become the world’s top seller of electric vehicles. WSJ’s Selina Cheng chronicles BYD’s ascent, as well as the challenges it faces holding onto the top spot. Further Reading: - How China’s BYD Became Tesla’s Biggest Threat  - Surpassing Tesla, China’s BYD Will Take On the World in 2024  - A Lamborghini-Style EV: BYD Goes Upmarket to Outmaneuver Tesla  Further Listening: - Elon Musk’s ‘Demon Mode’  - Tesla’s Big Price Cut  Learn more about your ad choices. Visit megaphone.fm/adchoices

For a long time, Tesla has been the king of the electric vehicle industry. But as of a few weeks ago, a new company is wearing the crown. It's called BYD. China's BYD. BYD. BYD. This car company called BYD. BYD is a car company called BYD.

BYD is based in China, and it makes everything from ultra-affordable EVs to passenger vans, and even high-end luxury models. What does BYD stand for? The company founder in previous interviews explained that it was actually an acronym that had no meaning initially. He selected the acronyms because it started with the second alphabet on the list. And if the company were to attend events, conferences, expos, they will be sure that the company comes up pretty much up top. That's our colleague Selena Chang, who covers China's auto industry. pretty much up top. That's our colleague Selena Chang, who covers China's auto industry.

During earlier years, the company's founder and other executives had joked that BYD actually stood for bring your dollars. Bring your dollars. Like, we're going to make some bank over here. Yeah. I guess they achieve that as well these days. The company now says that BYD stands for Build Your Dreams.

But the founder's joke about bring your dollars turned out to be prescient because the company is selling a lot of cars. And in the last three months of 2023, BYD beat Tesla in sales, making it the biggest EV producer on the planet. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Thursday, January 25th. Coming up on the show, how BYD became an EV powerhouse. Seth and Riley's Garage Hard Lemonade, a delicious classic with a vibrant taste of fresh lemons.

The perfect balance of sweet and sour with a crisp, zesty edge. Welcome to The Garage, the place of refreshing hard lemonade. Available at the LCBO. Must be legal drinking age. Please enjoy responsibly. BYD is the world's biggest EV automaker now. But when the company was founded in the 1990s, it didn't make cars at all. It started out making batteries.

The company was founded by a man named Wang Changfu, who studied chemistry in school. So even in the early days and mid-1990s, Wang Chuanfu and BYD were very ambitious, I would say. He started the company in 1995 to produce small lithium batteries for small appliances and cell phones. At the time, batteries were typically made in Japan, and they were really expensive. Wang wanted to find a way to make batteries cheaper. Japanese battery makers had sophisticated factories

with pricey equipment. Wang's idea was to build batteries by hand using cheap Chinese labor. He hired more than a thousand factory workers and divided up the process into hundreds of little steps. For example, each battery cell in the process, BYD would break down every single step into minute steps that could be done by a single person

and quickly pass on to the next one on the assembly line. The method worked, and BYD was soon able to mass-produce really affordable batteries. But most of the world's biggest battery buyers were overseas, an area where the company lacked experience. BYD really had almost no international connection when they first started the company. Wang Chuanfu never studied abroad or lived abroad, and his business executive, Stella Li, neither. Stella Lee. She joined the company in 1996. And even though she didn't have international experience,

she was a people person. So Wang sent her abroad to try and make some deals. Lee filled up containers full of batteries and hit the road. She just went out there, even though she had no connection, she knew nobody, she didn't know how business was done in these foreign markets. So people who knew her from those days told us that she would get on a cab and ask the cab driver where he could buy a small appliance using this kind of battery that BYD was making.

And she would be brought to the market, and from the market she would then talk to the sellers and figure out who would buy their batteries. And so very soon she was able to sell all the batteries that she brought with her from China. Li also used this strategy to win over the world's biggest cell phone companies. At one point, she flew to a Motorola office in Atlanta without even scheduling a meeting in advance. Nobody was expecting her, but she just went there and demanded to meet with their procurement people day after day after

day and one day people decided that they do want to see what she has in store and that ultimately was successful and Motorola did give BYD a lot of contracts not just for batteries, but also in the future for cell phone production as well. Talk about gumption. Just to show up in Atlanta at a company where you didn't have a meeting scheduled and just say, hey, listen, I'm not leaving until you hear my pitch. Yeah, I guess persistence does pay off. And she showed that she really had the will to make that happen.

What's Li's relationship with Wang like now? We know that she's been a senior executive in the company for a long time. And people who've met both of them and work at the company have told us that they're known to be a couple. And at one point, they were introduced to others as husband and wife.

Hmm. I mean, talk about a power couple. Yeah. Pun intended. Yeah. Definitely a power couple. BYD declined to say whether the two are together. Power couple or not, the pair turned BYD into a leading cell phone battery maker. And cell phone companies even started hiring them to manufacture the phones themselves.

When and why did BYD decide to enter the auto industry? I think Wang Changfu has always had the inkling that he could make electric cars using the batteries that he already knew how to make. At that time, there were already some electric cars and hybrid technology in the market, even though it wasn't very common. It was still sort of in an experimental stage. So I think Wang Chuanfu knew even then that he could possibly try to make it and succeed. And people knew that EVs could become a thing. It just wasn't commercialized or mass produced. Wang knew how to make batteries, but what he didn't know how to make was cars. So he started studying how other companies did it, starting with

gas-powered ones. So Wang Chai-Fu actually was quite public about how he learned car making, which was by buying the cars made by all these foreign brands and pull them apart and trying to reverse engineer every part and every component that was in this car. So their first car looked a lot like a Toyota Corolla. He didn't say that directly that he was copying from Toyota, but he did say that Toyota was the top of the auto industry at the time, and he wanted to learn from the best one.

at the time, and he wanted to learn from the best one. Like with batteries, Wong relied on low-cost manual labor to build his new Toyota lookalikes. And as a result, BYD was able to keep prices low. People would get it simply because it was cheaper and it could somehow roll on the road on four wheels. And so around that time, car maintenance shops and garages, they would offer to swap out the BYD logo for another Japanese or Korean brand logo on the car. It was just a thing that some people would do. So they would like swap out the BYD logo for like the Toyota symbol? Yeah,

so they would swap it out and it would look pretty close. But of course, the company would deny that they were counterfeiting other companies' products. BYD's early gas-powered cars weren't great quality, but they did sell well. And soon, the company caught the eye of a major investor, Warren Buffett. In 2008, Buffett sent an executive on his team named David Sokol to a BYD factory in China. When Sokol arrived, Wang and Li pitched him on how BYD was planning to one day expand into EVs. And then, according to a person familiar with the visit, Wong did something surprising. It was during this visit that Wang Chuanfu tried to convince David Sokol how safe his batteries were. And so he poured a glass of this battery fluid

that typically would go into a battery cell and drank from it to show him how safe it was. I don't even totally know if I understand the logic there. Like these batteries are so safe to put in cars that I can drink the fluid that goes inside of it? Like what? I think one of the biggest criticism or skepticism against EVs, even now, is that the batteries are not safe.

If they could combust and it's really not safe compared to a gas car, that was the perception. So maybe he was trying to dispel some of that. In September of that year, Buffett's company, Berkshire Hathaway, bought a 10% stake in BYD for about $230 million. The investment from Berkshire Hathaway really changed things for the company because it became a massive seal of approval. After Buffett's investment, BYD moved full speed ahead on electric vehicles. In 2008, the company came out with a plug-in hybrid.

And in 2010, it launched its first full-fledged EV. At one point, the company's rapid growth made Wang China's richest man. Then BYD got another big boost, this time from the Chinese government, which started pushing the country to switch from gas cars to electric ones. The government gave big incentives to Chinese EV manufacturers and to consumers. It offered cash subsidies, set aside parking spots for EVs, and even barred gas cars from certain crowded streets. When these come along, I'd say that BYD became the primary beneficiary, but also a frontrunner in this whole movement towards EVs. But in 2019, a new challenge emerged from the original giant in the EV world.

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Tesla has been selling cars in China for years. But in 2019, the company opened a factory there, which allowed it to avoid the country's import tariffs and dramatically lower its prices. Tesla at that time was, you know, this hip and very sought after as a brand. People believed in it, believed in the mission that Elon Musk was selling.

And people really welcomed Tesla into China. So a lot of people ended up buying Teslas because it's a foreign EV. They believed it to be reliable. And that to BYD and other Chinese companies was a scary moment. How did BYD respond to the entrance of Tesla into the Chinese market? From outside, we know that some of the company executives, they would say,

we don't look at Tesla, we just do our own thing and try our best and blah, blah, blah. But the reality is everyone was pitching Tesla against BYD, vice versa. So Tesla was really sort of the bar that people were judging BYD on. Yeah. At first, Tesla kicked BYD's butt. Tesla's cars were not only nicer, but they also had much better range than many of BYD's models. In 2019, BYD sold 21% fewer vehicles than it had the year before,

also driven in part by lower government EV subsidies and a sluggish economy. The company's earnings that year fell by almost half. Wang said BYD's only goal at the time was to survive. But the following year, BYD started to turn things around. It was in around 2020 that they came out with what they call the Blade battery. It's a little bit cheaper, but less dense in terms of energy. Importantly, the Blade battery had much better range than BYD's earlier models. So because they were able to develop and manufacture this battery on their own. They put them in most of their

electric cars, and the market took to it very quickly. And that's how their EV sales started to go up in around 2020. With a better blade battery, BYD's cheaper models became more attractive. Its most affordable EVs cost only about $10,000, while Tesla's are more than $30,000. BYD also had more models for Chinese consumers to choose from. From 2020 to 2022, BYD's global sales quadrupled. And then, at the end of 2023… And who's the new king? China's BYD. BYD surpassed Tesla as the largest EV maker in terms of sales. BYD sold 526,409 fully battery electric cars, most of them in China,

whereas Tesla handed over 484,507 globally. whereas Tesla handed over 484,507 globally. How big of a deal is it that BYD has now overtaken Tesla in sales of EVs? It's a pretty big deal because BYD has been turning out a lot of cars in China, but for some time, even though it appeared to be coming out front in China as an EV maker, it was still trailing behind Tesla for a bit until the last quarter. For BYD to be able to produce and sell more EVs than Tesla does is a very symbolic moment, I think, to the Chinese car industry and to people in China. And it's a very big deal for BYD and for the

country as a whole. It's able to not just manufacture for foreign companies, but it's also doing its own design and technological development. And it has ownership over the supply chain for EVs for most parts of the supply chain. chain for EVs, for most parts of the supply chain. What's it going to take for BYD to keep growing? At this moment in time, BYD is becoming more and more mature as a carmaker. Even though the vast majority of its sales are still in China, it is now trying to expand its global footprint by setting up manufacturing in other continents, covering most parts of the globe, basically. BYD will face many challenges as it tries to expand outside of China.

In Europe, Tesla sells far more cars than BYD. And the European Union is investigating whether Chinese automakers are unfairly benefiting from the Chinese government's help. In the U.S., BYD barely has a presence at all. Currently, the U.S. imposes big import taxes on Chinese-made vehicles. And geopolitical tensions with China mean it will be hard for BYD to get a foothold. One of the challenges for them to grow internationally is whether their cars will become popular and sell well.

So it's not going to be easy because they have cracked the code for the market in China. But whether or not they could replicate the same formula of success elsewhere is something we still got to see. Thank you.