BYD is ramping up overseas factory building. Including Thailand, Brazil, Europe, and more, it plans to build factories in more than five locations. The development of overseas markets can not be separated from the local factory, Toyota, Volkswagen, Tesla have taken this road, BYD also began to start.
Pure electric vehicle (EV) giant China’s BYD is stepping up its efforts to build factories overseas. There are plans to build factories in more than five locations, including Thailand, Brazil and Europe. BYD’s net profit hit a quarterly high in July-September 2023, but growth in the domestic market is slowing. Future growth will be determined by the establishment of a price competitive production system on a global scale.
BYD posted a net profit of 10.4 billion yuan for the July-September period on Oct. 30, up 82% from a year earlier. On a quarterly basis, this is the highest level since it was listed on the Hong Kong Stock Exchange in 2002. The net profit margin on sales also reached 6.4 percent, an increase of 1.5 percentage points.
With the Chinese economy facing a slowdown in the real estate slump and sluggish consumption, BYD has launched a variety of pure electric vehicles and plug-in hybrid vehicles (PHV) to capture demand. Through the self-production of vehicle batteries and main components, procurement costs are reduced, pushing up profits.
In mid-October, the BYD store in Guangzhou was crowded with families with children and others. The sales staff said that the best-selling models are “Song”, pure electric vehicles “dolphin” and “Seagull” these three models. Driven by the “Seagull”, which is favored by young people and has a lower price, BYD’s overall sales of pure electric vehicles from July to September increased by 67% to about 431,600 vehicles, which is only about 3,400 vehicles short of the American Tesla.
Despite the momentum, there are risk factors ahead. At home, BYD’s market share has hit the ceiling because of the new car offensive. The market share of BYD’s pure electric vehicles and new energy vehicles (NEVs) such as PHVS peaked at more than 35% in January 2023 and now hovers at more than 30%.
“In the case of peak market share and intensifying competition, the current performance can be sustained is still questionable”, Morgan Stanley also pointed out in a report in mid-October that the current BYD stock price is 30% lower than the highest point in late June 2022.
BYD is aggressively targeting overseas demand for future growth. It now exports to more than 50 countries and regions, and overseas sales from July to September are 4.2 times that of the same period in 2022, reaching 71,200 vehicles. In September, the proportion of sales outside China was close to 10 percent, and the company also showed its intention to build a production system overseas.
In September 2022, BYD announced the construction of its first passenger car factory outside China in Thailand. It has an annual production capacity of 150,000 vehicles and is scheduled to start production in 2024. Aiming at Toyota, Isuzu and other Japanese car companies have a high share, known as the “Japanese car base camp” Southeast Asian market. BYD has gone on the offensive, seeing the slow pace of Japanese car makers’ transition to pure electric vehicles as an opportunity.
In July 2023, it also announced the construction of a factory for pure electric vehicles and battery materials in Brazil. The total investment of the project is 3 billion reais (about 4.355 billion yuan), and production will start in the second half of 2024. A plant for cathode materials, a major component of batteries, is also expected to be built in Chile.
Still, the environment for Chinese cars is tough. The United States passed the Inflation Reduction Act, which gives tax incentives to pure electric vehicles produced in North America. In Europe, the European Commission also began investigating whether subsidies hinder competition for Chinese-made pure electric vehicles in early October. The importance of setting up local factories is increasing in order to overcome such vigilance overseas.
BYD is considering setting up a factory in Europe. Chinese media reported that BYD executives said at the German auto show in September that a site for the factory would be finalized by the end of the year in order to produce cars in Europe.
In a report evaluating the performance and cost of BYD’s pure electric vehicle Seal, UBS pointed out that BYD is fully producing on-board batteries, main devices, and electronic components including printed circuits, which account for three-quarters of the value of the vehicle.
“Although the cost of producing Seal in Europe is up to 10 percent higher than that of China, it is still up to 25 percent cheaper than the same level of pure electric vehicles of existing auto companies,” the company said.
To open up the overseas car market, local factories are indispensable. This is because it is possible to produce vehicles with performance that meets the needs of each location while reducing transportation costs. In addition, local factories are necessary when dealing with issues such as employment.
Toyota, Volkswagen, Tesla and other world giants have taken this road, BYD has also begun to start. Of course, other Chinese companies and South Korean Hyundai Motor are also intensifying their offensive in the pure electric vehicle market. The focus is on whether the low-cost supply chain that China excels at when producing in China can be brought to places like Thailand and Europe.
Tang Jin, director of commercial solutions at Mizuho Bank in Japan, pointed out that BYD wants to expand sales overseas, first of all to build a supply chain including production, sales and after-sales service. Having secured market share in China, BYD has entered a phase of testing its new growth potential.