The Biggest Threat to Tesla Dominance
When it comes to electric vehicles (EVs), Tesla has been the clear global winner for years, with almost five million EVs sold worldwide to date. Tesla’s dominance has been largely unchallenged until recently, as many legacy automakers, like GM, Ford, and Hyundai, have recently started to introduce mainstream EVs – but at a tiny fraction of Tesla’s volume. However, the biggest single threat to Tesla’s global dominance is actually from a company that you’ve likely never heard of – BYD.
BYD, which stands for “Build Your Dreams,” is China’s largest and most successful automaker. The company has been backed by U.S. investment billionaire Warren Buffett since 2008. While Tesla’s total 2023 global sales totaled 1.8 million vehicles, BYD sold over 3 million battery-electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) in the same period – a 62% increase from the previous year. In the fourth quarter of 2023, BYD outsold Tesla in BEVs for the first time as well. BYD is already among the top 10 global automakers, and is expected to reach 4 million vehicle sales by the end of 2024.
With BYD’s growing global popularity and looming entry into the US and Canada, what is it about the company that provides opportunities and implications for both consumers and the auto industry?
BYD: From Phone Batteries to Electric Vehicles
BYD originally started in the 1990s as a battery supplier for cell-phone companies like Nokia and Motorola. In 2003, BYD Auto was established by its founder and current CEO, Wang Chuanfu, following the acquisition of the Xi’an Qinchuan Automobile company. It launched its first internal combustion engine (ICE) vehicle in 2005, and its first plug-in hybrid in 2008. That same year, Warren Buffett acquired a 10 percent ownership stake in the company. BYD’s first EV, the e6, was released in 2010.
In 2016, BYD decided to invest in its vehicle design language, and hired Wolfgang Egger as its head of design. Egger is behind many iconic designs for Alfa Romeo, Audi, and SEAT. By 2019, the company started to think about growth outside of China – and also stopped all pure-gasoline vehicle production in 2022 to focus only on BEVs and PHEVs – referred to as “new energy vehicles” in China.
Global Growth of BYD
Although BYD started to export a small number of cars in 2009 to Africa, South America, and the Middle East, the company’s rapid global growth only really started in 2020.
Leading up to 2020, China’s domestic automotive market was becoming saturated and intensely competitive, with hundreds of brands shutting down their operations. The stronger brands, like BYD, began to dominate the domestic Chinese market and looked for global expansion opportunities. In 2020, BYD began selling EVs in Denmark, Sweden, the Netherlands, Germany, France, and Belgium – achieving sales of over 427,000 vehicles globally.
By 2023, BYD’s exports had increased by 334%, with an additional 242,765 vehicles exported across 70 countries, including Thailand, Australia, Brazil, Columbia, Israel, Mexico, Japan, and other Southeast Asian and European countries. Even in the Chinese domestic market, BYD captured nearly 40% of the EV market, and surpassed VW as the best-selling car brand in China. Today, China is the largest vehicle producer in the world, with about a third of vehicles globally produced in China by 139 automakers. China is also the world’s largest EV market with well over 7 million vehicles sold in 2023.
Following its entry into Mexico in 2023, BYD plans to establish an assembly plant in one of the Mexican states for its new Shark PHEV pickup truck. BYD is also looking to expand to the U.S. and Canada, despite the recent 100-percent tariffs introduced in both countries on Chinese-made EVs. BYD’s entry into the US and Canada is inevitable. It’s not a matter of if, but when, BYD will enter these lucrative markets.
So what can we expect?
BYD: Vehicle Lineup
Unlike Tesla, which only offers five battery-electric passenger models and the Tesla Semi, BYD has a very diverse product lineup.
One interesting thing is that BYD is one of the largest commercial EV truck manufacturers in the world. It produces light commercial vehicles and taxis for China, Europe, and other Asian countries. The company started to build electric buses in 2009. Today, it builds and sells electric buses in the US from its factory in Lancaster, California, making it the largest EV bus manufacturer in North America.
Like other Chinese automakers, BYD also offers high quality BEVs and PHEVs for private users that are on par, or better than, those offered by many legacy automakers. In many cases, their vehicles offer excellent value, with cutting-edge features and technology at a lower purchase price than their competitors.
BYD’s passenger cars account for the majority of its sales. The company sells many BEV and PHEV models under five different brands and sub-brands:
- Ocean Series: These vehicles are designed to appeal to younger buyers with unique styling and lower prices, including the $10,000 USD (US estimated price) all-electric sub-compact Dolphin (also called Seagull in some markets).
- Dynasty Series: These vehicles offer more premium features, design, and pricing. Examples include the $34,000 USD all-electric Tang 7-seater SUV. Both Ocean and Dynasty Series are sold under the BYD brand.
- BYD’s Denza: This brand is a joint venture with Mercedes-Benz that offers luxury electric vehicles, including an all-electric 7-seater luxury minivan and luxury crossovers.
- BYD’s Yangwang: This luxury car brand competes with prestige European luxury brands, offering vehicles over $140,000 USD, including a full-size off-road PHEV SUV and an all-electric supercar.
- Fangchengbao: This brand is BYD’s dedicated SUV brand designed to compete with Land Rover and other luxury SUVs.
BYD’s Competitive Advantages
BYD’s global success is a result of its many distinct advantages over Tesla and other legacy automakers.
Due to its high production volume, domestic currency, and lower labor costs in China, BYD is able to offer vehicles at substantially lower prices than other automakers. In China, BYD sells 10 vehicles that are cheaper than Tesla’s base Model 3 – they are all priced under $30,000 USD with the lowest model starting at about $10,000 USD. In fact, the average BYD-branded model in China sells for about $22,000 USD – versus Tesla’s at an average of around $45,000 USD. Even at these lower prices, BYD is the only other profitable EV automaker aside from Tesla.
BYD’s biggest advantage when it comes to EVs is that it designs, builds, and engineers its own batteries. In fact, BYD is the world’s second-largest producer of EV batteries, behind CATL, another Chinese battery company. BYD supplies batteries to many automakers, including Toyota, Tesla, and Kia. Its Blade LFP (Lithium Iron Phosphate) batteries are class-leading for safety, durability, cost, and energy density.
According to Barclays Research, 33 percent of a vehicle’s costs come directly from its battery. BYD, thanks to being such a large battery manufacturer, has been able to drive down the cost of batteries in its EVs to around $6,000 USD per vehicle; in contrast, the average battery cost in Tesla vehicles and other Chinese EVs is about $7,000 and around $13,000 in Ford and GM vehicles.
While many automakers over the recent decades outsourced design, parts, engineering, and manufacturing, BYD is highly vertically integrated. As a result, it controls its own component costs and has been able to drive down the prices of its vehicles, while remaining profitable and increasing quality. It operates its own lithium mines, lithium processing, and does its own battery production, computer chip manufacturing, electric motors, electronic controls, and more.
75 percent of the parts fitted to a BYD Seal, for example, are actually made by BYD. Tesla, also vertically integrated, makes 68 percent of its Model 3 parts. Volkswagen makes about 35 percent of the parts for its ID.3 compact EV hatchback. Because of its vertical integration, BYD was hardly impacted by the supply chain shortages during and following the COVID-19 pandemic.
It’s estimated that BYD can make EVs for about a third of the cost of its North American auto counterparts. This means that it can still offer a lower competitive price point while maintaining profitability.
Consumer Affordability and Choice
What does BYD’s looming entry into the US and Canada mean for consumers shopping for an EV?
The biggest benefit to American and Canadian consumers might be affordability. Higher purchase prices for EVs are among the main concerns among consumers have when considering an EV. In a recent J.D. Power study, the average transaction cost of an EV was $57,584 USD (excluding the federal $7,500 tax credit) – which was $13,000 more than the average transaction price of an equivalent gas vehicle.
BYD, along other Chinese automakers, can in theory provide much more affordable EVs that would cost thousands less than current EVs from legacy automakers. Even with the U.S. and Canada’s recent 100-percent tariffs on Chinese EVs, BYD may still be able to offer many of its vehicles at lower prices than those from legacy automakers.
Choice is another benefit for consumers. While many legacy automakers only offer a handful of BEVs and PHEVs for each brand in limited vehicle segments, BYD offers a full lineup of BEVs and PHEVs – including subcompacts, sedans, crossovers, SUVs, and even a large pickup truck.
By comparison, Toyota only offers one EV, the bZ4X battery-electric compact crossover, in addition to two PHEVs - the Prius Prime and RAV4 Prime. Even Tesla only offers five BEVs and no PHEV options. Ford only offers one PHEV, the Escape PHEV, as well as three BEVs – the Mustang Mach-E crossover, F-150 Lightning, and E-Transit cargo van. It has also recently cancelled and delayed many of its future EVs in favor of ICE and conventional hybrids.
BYD – Auto Industry Implications
Even though BYD’s entry into the American and Canadian markets will likely benefit consumers and help governments meet their Zero Emission Vehicle (ZEV) targets, many are concerned about the impact to the North American auto industry. The auto industry is one of the largest sectors in the U.S. and Canada, and tied to the health of the economy. It includes vehicle and component plants, parts suppliers, integrated supply chains, and sales networks for brands like GM, Ford, Stellantis, Toyota, Honda, Hyundai, BMW, Tesla, and Mercedes-Benz.
The truth is that legacy automakers simply cannot compete today with BYD’s EVs, in terms of pricing, value, features, technology, production volume, body styles, and profitability. Ford, for example, estimates that they lose over $100,000 on each EV that they sell today, including the F-150 Lightning that tops out at about $85,000 USD (MSRP). It’s simply unsustainable for Ford and all other legacy automakers.
This concern has prompted all legacy automakers to develop future low-cost EVs that can be offered at lower prices and at a profit. However, getting these new EVs to market will likely take a number of years. Tariffs will buy limited time for the legacy automakers to catch up to BYD and other Chinese automakers. The legacy automakers will need to anticipate BYD’s future vehicles and market entry to be both competitive and profitable. At the exponential rate of BYD’s growth, this will prove challenging.
Final Thoughts on BYD
BYD has proven itself as a global automotive juggernaut that can produce a broad range of highly desirable EVs at lower prices, while offering outstanding value, quality, features, and technology. It can deliver its vehicles at high volumes and sustainable levels of profitability that are unmatched by legacy automakers.
BYD’s entry into the US and Canada is simply inevitable and just a matter of time. It offers significant benefits to consumers shopping for an EV but presents a huge challenge for legacy automakers if they can’t bring competitive EVs to market.
