China’s BYD was written off by Elon Musk. Now it’s beating Tesla

China’s BYD was written off by Elon Musk. Now it’s beating Tesla

Beijing, China – The Chinese company that this month dethroned Tesla as the world’s top seller of electric cars is no household name.

BYD, founded in 1995 by entrepreneur Wang Chuanfu, has little brand recognition outside China despite selling some 641,000 pure electric and hybrid vehicles in the first half of 2022 – nearly 80,000 more than its Texas-based rival.

But for Tony Fu, the owner of a BYD Tang PHEV hybrid since 2015, the Shenzhen-based company’s roaring success is no surprise.

“Its prices are much better than Tesla’s,” Fu, who lives in Shanghai, told Al Jazeera.

“And it has more models. Now domestic [Chinese] brands offer more choice – so no wonder the sales of BYD are better than Tesla’s.”

Tony Fu

BYD’s spectacular rise comes despite years of naysaying about the quality and safety of China’s electric vehicles, underscored by staggeringly high recall rates across the industry that have at times exceeded 10 percent.

Among the most prominent critics was Tesla CEO and co-founder Elon Musk.

“Have you seen their car?” Musk said in a Bloomberg interview in 2011. “I don’t think they make a good product.”

A little over a decade later, Warren Buffett-backed BYD is not only outselling Tesla, but also travelling on a more promising trajectory.

The Chinese firm reported sales growth of 315 percent in the first six months of the year, compared with 46 percent growth for the former number one.

BYD and Tesla did not respond to Al Jazeera’s requests for comment.

Despite selling more than 90 percent of its vehicles at home, BYD’s ability to tap into China’s pool of nearly 480 million licensed drivers has enabled it to harness explosive growth.

Value for money has been central to the carmaker’s appeal, with models offered at lower price points than its foreign rivals, thanks in part to the use of less powerful but cheaper lithium iron phosphate batteries.

In gridlocked cities like Beijing and Shanghai, where drivers rarely get to test the speed limit, that affordability has proven a bigger draw for many customers than the time it takes to get from 0 to 60mph.

BYD’s Han sedan retails in China for about $32,000, almost $18,000 less than Tesla’s entry-level nearly Model Y.

BYD headquarters

Bill Russo, founder and CEO of Shanghai-based strategy and investment advisory firm Automobility, described BYD’s recent sales milestone as a “kind of manifest destiny”.

“The EV market in China is by far the world’s largest,” Russo told Al Jazeera.

“BYD is the dominant player, with five of the top 10 selling models. So it makes sense that China will lead the world to electric propulsion. And certainly be the lead market force.”

China’s ambitions to be an electric vehicle powerhouse have also assisted BYD’s rise.

Beijing poured billions of dollars into battery and EV companies to research alternatives to the combustion engine alongside subsidies and tax breaks to encourage the adoption of low-emission vehicles.

BYD, which had a proven track record as a mobile phone battery manufacturer for companies such as Motorola, was among the major beneficiaries of that cash influx.

The government support helped BYD pivot to EVs during the late 2000s, by which time it had become a major player in petrol-powered vehicles on the back of the acquisition of state-owned carmaker Tsinchuan.

“BYD has enjoyed and taken full advantage of government incentives and encouraging policies,” Thomas Callarman, a former director of the China Europe International Business School’s Centre for Automotive Research who has researched China’s EV industry, told Al Jazeera.

“In addition, in our interviews with some government representatives, as well as interviews with BYD management, it was stressed to us that China wanted to be the world’s supplier of EVs, and BYD wanted to lead the charge – no pun intended,” Callarman added.

BYD has also enjoyed an advantage during the pandemic due to its location in Shenzhen, which has experienced less severe lockdowns than Shanghai, where Tesla has its largest overseas plant.

“In addition, BYD produces most of its own parts, and the major suppliers of parts it didn’t produce are available from Chinese suppliers,” Callarman said.

Wang Chuanfu,

But Russo, the founder of Automobility, said it would be a mistake to reduce BYD’s success to either government support or good luck.

“The EV market wouldn’t exist today if the Chinese government didn’t invest heavily in subsidising. But I could say the same thing about Tesla – if the California government didn’t heavily subsidise zero-emission vehicles, Tesla would’ve had zero profits for the first 10 years of its existence,” he said.

“The highest cost component in the vehicle is the battery. So if you started out as a battery company, then became an EV company, you have supply chain dominance. Both Tesla and BYD have that vertically integrated battery supply chain that gives them a competitive advantage. Anybody else is relying on somebody like LG, Samsung, or even BYD to manufacture the battery for them.”

BYD’s next challenge will be to make inroads overseas. After years of selling electric buses in leading markets, including the United States, India and Japan, the carmaker has set its sights on shifting its cars abroad.

The company earlier this month announced plans to enter the Japanese market next year with the Atto 3, Dolphin and Seal models, following recent forays into Australia, Singapore, Norway and the Netherlands.

“I would believe the key to this success would be its success in the US,” Callarman said.

That is no sure bet, not least because of a ban on federal funding for Chinese manufacturers such as BYD that was introduced last year amid claims of unfair competition and potential cybersecurity risks. Industry watchers also point out that many American consumers, fairly or not, have a perception that Chinese brands are of lower quality than their US, European and Japanese counterparts.

Other looming challenges apply to the EV industry as a whole, including potential shortages of key battery materials like lithium.

Still, Russo said BYD has significant advantages, including attractive prices, weighing in favour of it taking off overseas.

“BYD has the opportunity to do so. Affordable EVs are a value prospect outside of China,” he said.

“If you’re looking for affordable electric vehicles, right now the only place you can find that is China, until the global industry steps up to scale up these products to a price the market will accept.”