BYD - from battery company to Tesla's biggest threat

A few years ago, Chinese electric car company BYD only aimed to survive, but now they are threatening Tesla's throne.

BYD was founded in 1995, initially only producing batteries. However, their name has gradually become known in the past few years, thanks to making electric cars. They sold more than 431,000 cars in the third quarter, only nearly 4,000 less than Tesla.

BYD plans to sell 3.6 million vehicles this year (including electric and gasoline-electric vehicles). This number can put them in the top 10 largest car manufacturers in the world in terms of number of cars sold. In the first quarter of this year, they also surpassed Volkswagen to become the best-selling car brand in China and are actively exporting.

This leap is a testament to the ambition of two BYD leaders. They are BYD founder Wang Chuanfu (57 years old) and Senior Deputy Director Stella Li (53 years old).

Wang Chuanfu and Stella Li at the Munich Auto Show in September. Photo: Bloomberg

Wang was born in 1966 into a farming family in Anhui. He lost his parents at an early age and was raised by his siblings. Wang earned a bachelor's degree in chemistry, then worked in battery research at a state research institute.

In 1995, Wang founded BYD after borrowing $300,000 from a wealthy relative. At that time, BYD only made batteries used in phones and other devices.

In interviews, Wang said that when he came up with the name BYD, he had no specific meaning in mind. The company now says BYD stands for Build Your Dreams. Previously, Wang even joked that BYD is Bring Your Dollars.

To speed up production and save costs, Wang recruited more than 1,000 workers. He divided the battery manufacturing process into hundreds of steps, allowing untrained workers to work without expensive equipment.

In 1996, Stella Li - a statistics expert who graduated from China's top university - joined BYD. Even though Li's English was weak at that time, Wang still sent him to Europe and China to survey phone companies, to see if they were more interested in cheap batteries from China than batteries from leading Japanese brands. Are not.

Li then pledged that they could meet all customers' price and time requirements. A BYD leader recalled that a customer once joked, "The first English sentence Li learned was probably We can do that."

In the late 90s, Li suddenly appeared at the Atlanta office of Michael Austin - a Motorola leader. She asked to meet with the company's purchasing department. Austin recalls that he was shocked to learn that BYD relied on workers instead of machines for production and was concerned about quality issues. However, Li convinced him by explaining that they had a process to ensure the removal of defective goods.

"She was very determined, she spoke very convincingly," Austin recalls. He later became the Director of BYD's US business for more than a decade.

In 2000, Motorola became a BYD customer. 2 years later, it was Nokia's turn. This helps BYD reach the top 5 rechargeable battery manufacturers in the world. Mobile phone sales began to boom, making BYD one of the cheapest vendors.

A BYD assembly line in Shenzhen in 2016. Photo: Reuters

When BYD listed in Hong Kong in 2002, Wang used part of the money from the IPO to buy an abandoned car factory from a state-owned arms company. Because he was manufacturing batteries, he realized the potential of batteries in cars. Previously, Toyota pioneered the Prius electric-gasoline car in the late 90s.

BYD's first car was a gasoline car called the F3, launched in 2005 and almost identical to the Toyota Corolla. For non-experts, the only difference between these two cars is just the badges.

Wang has never been shy about talking about this strategy. In interviews, he said that BYD takes inspiration from other companies' finished products.

"We have to learn from them, to be able to stand on their shoulders," he said in an interview in China in 2021. A BYD spokesperson also affirmed that they always respect intellectual property rights and respect other businesses.

When making cars, Wang also applies the same strategy as making batteries to reduce costs. He avoided investing in expensive equipment and hired thousands of employees to keep the processes simple.

This company produces almost every component, from semiconductor products to chassis and vehicle lights. From the early days, Wang decided to make the most expensive and important components of the car himself, including the battery.

This helped them sell F3 cars for only $8,000, half the price of a Corolla at that time. Despite many quality problems, such as car window problems when raising and lowering, the F3 still topped sales charts in China in the late 2000s.

BYD's booth at the Munich Auto Show. Photo: Reuters

Warren Buffett is among the few Americans who recognize BYD's potential. In 2008, David Sokol - Buffett's valuable partner at that time, went to Shenzhen to visit the BYD factory.

Li showed Sokol the competitiveness of BYD batteries and its diverse product pipeline. She also talked about her ambition to expand internationally, including the US market. Wang led visitors around the factory, explaining BYD's production and testing processes. They even have a flame generator to ensure the battery doesn't burn out.

In September of that year, Berkshire Hathaway - Warren Buffett's investment company - bought 10% of BYD shares for $232 million. 3 months later, BYD launched the world's first mass-produced gasoline-electric vehicle. This move is even ahead of General Motors and Toyota.

By the end of 2009, BYD shares had quadrupled in price. Berkshire's shares also increased to more than 1 billion USD. Wang became the richest person in China, according to Forbes statistics at that time. However, he still maintains a frugal lifestyle, often flying economy class and carrying his own belongings.

In 2010, BYD started making fully electric vehicles. This decision is in line with Beijing's policy. The Chinese government has introduced a series of measures to subsidize prices, reduce taxes, and waive vehicle registration fees for electric vehicle buyers. By the mid-2010s, BYD launched gasoline-electric vehicles that were significantly cheaper than Toyota.

In 2018, then Toyota CEO Akio Toyoda went to China. Before the meeting with Toyoda, Wang told executives he was worried Toyoda would ask about how BYD's first models resembled Toyota. However, Toyoda then only asked about how Wang reduced production costs, WSJ sources said.

In 2019, BYD sold 21% fewer vehicles than the previous year, due to increased competition in China, a slowing domestic economy and reduced government support for electric vehicles. Profits in 2019 even decreased by half. Wang said the company's goal then was just to survive.

Then they created a new battery, helping revive the company. Blade was born after many years of research by Wang and his team of engineers, to find a safe battery and help the car go longer distances.

Blade is installed on Han electric vehicles, which can run 600 km on a single charge. This car costs $30,000, up to $40,000 cheaper than a Tesla Model S with similar mileage.

Demand for this car then skyrocketed. BYD surpasses domestic startups NIO and Xpeng thanks to its product system with diverse features and prices.

Recently, BYD also moved to Europe and Southeast Asia. They export cheap electric vehicles, made in China. BYD aims to double the number of exported cars this year, to 400,000 units. Besides China, BYD is also the leading name in electric vehicles in many markets, such as Australia, Sweden, Thailand and Israel.

At the Munich auto show last month, executives from rival companies flocked to BYD's booth. Attendees also reserved seats to test drive BYD cars a few days in advance. BYD's main export car line - Atto 3 - is advertised in Europe as an "affordable luxury car", priced at $40,000.

As BYD focused on exports, US and European officials began to worry. They strive to build these industries in the country. European automakers are increasingly complaining about BYD and other Chinese automakers. The EU is also investigating whether Chinese automakers unfairly benefit from government support.

In North America, BYD has become one of the largest electric bus and electric truck companies. They consider this an easier segment to penetrate than passenger cars, due to policy barriers in this area. US-China relations have been tense in recent years, causing BYD leaders to not see opportunities in the US car market.

However, going international is essential for this company. China's economy is slowing down. The number of passenger cars sold has gradually decreased since its peak in 2017. Domestic competition is also increasing.

Last year, BYD stopped producing gasoline-only vehicles. They are planning to launch several new products, such as electric trucks, in overseas markets in the next 3 years. Over the past decade, when human costs at Chinese factories increased by 122%, BYD adapted by reducing dependence on humans and increasing automation.

From 2020 to 2022, BYD's global revenue increased fourfold. A BYD spokesperson said this is proof that customers are satisfied with the quality of the car.

Speaking at an event in Shenzhen in August, Wang highlighted BYD's evolution from a battery company to a car company. It took them 13 years to produce 1 million cars, but only 1.5 years to make 2 million more and 9 months to sell the next 2 million.

"The era of Chinese cars has come," Wang concluded.