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China is on Fast Track of Automobile Exporting

BYD Crown: The Biggest EV Maker 

Chinese Automaker, BYD, proudly announced at the end of last December that this biggest carmaker in China overtook Tesla on electrical vehicle shipments in the final quarter of 2023: 526,406 BYD EVs were delivered versus 484,507 Tesla vehicles. The media and press in China reported BYD's announcement as the "New World Champion of New Energy Vehicles.". Although a significant portion of BYD delivery served domestic market, the company was aggressively expanding to overseas market in line with China's ambitious goal of boosting exports by promoting “New Energy Vehicles, Lithium Batteries & Solar Energy” (a.k.a. Three New Items on Export) products and technologies. 

In mid-Jan, 5,000 EVs were transported aboard a new Ro-on/Ro-off vehicle carrier "BYD Explorer No. 1”, chartered from Zodiac Maritime, from Shenzhen to the Netherlands and Germany. For vehicles shipping overseas, BYD has ordered their own fleet of ships from Chinese shipbuilders to reduce shipping costs and improve competitiveness. Other Chinese automakers, such as Chery & SAIC, have also placed orders for vehicle carriers to boost exports. 

In addition, BYD is also planning to set up EV production in Hungary, which will be the first car production plant for BYD in Europe.  The total investment will be $22 million that can ramp up to producing 220,000 cars per year over phases. BYD currently has an assembly plant for electrical buses in Hungary that produces about 400 buses each year.  To take advantage of USMCA (US-Mexico-Canada Agreement), BYD is seeking to take Mexico as an export hub to the US. Furthermore, China exported 4.91 million passenger cars in 2023, winning the title of "World's Top Car Exporter" from Japan, which exported only 4.42 million.

An Industrial Kingdom’s Growth from Greenfield Within a Few Decades

In 1995, BYD began as a battery supplier for Motorola and other electronic companies, then moved into the automaker business since 2003 and grew to be the biggest automaker in China. It took less than 30 years to meet this business growth need. The road path of the company's success was a textbook style of "Vertical and Horizontal Expansions": started as a small supplier and grew rapidly and switched to other industries during the high-flying period of China - The World's Factory. As a result of capital gains and supply chain optimization, the company expanded and became the market leader. In addition, since the core product categories are growing and rolling over, peripheral products/supplies may also have opportunities to leap forward, because the business potential exists. In China, lithium batteries, an important component of EV growth, were a typical example of this coexisting environment.

Achilles’ Heel

Despite most clapping their hands at BYD's success, some critics had deep concerns. The per unit margin was questioned because BYD has less price control power than Tesla. With Tesla's higher gross margins and market reputation, they are in a better position to set prices. BYD's sales were shaken whenever Tesla changed its price, and it had to respond by cutting its price. 

Another threat to BYD (and most Chinese automakers) is the excess inventory within distribution channels. While no official evidence was provided, some economists believe a large portion of domestic shipments were shipped to distributors and dealers as their inventories with huge financial incentives: better credit terms and discounts. It will take time for the cars piling up in the supplying channels to digest, which will be evident in Q1 and Q2 2024. Nonetheless, BYD's stock price (as of Feb 16) dropped 13% from its peak in December 2023, showing that the market is concerned about the company's future.

A Country with a Big Auto Industry Does Not Necessarily Imply a Strong Country 

Chinese state planners dream of building a strong automobile industry in their country. There is no doubt that China has been elevated to the status of a "BIG COUNTRY" in the automobile industry, however, there was much debate about whether China has already reached the status of a "STRONG COUNTRY" in the automobile. As mentioned earlier, China surpassed Japan in passenger car exports in 2023. When all types of vehicles are included: passenger cars, buses, and trucks, Japan exported 5.97 million vehicles, while China sold 5.22 million. Furthermore, Chinese car exports benefited from surged exports to Russia because of embargoes to Russia by other countries. To gauge the strengths of a country in automobile manufacturing, industry commenters also considered peripheral and argumentative products, such as exports of auto parts, branding, innovations, and services for benchmarking. Although automakers have made great efforts to close the gap, the Chinese automobile industry still has a long way to go. Anyhow, as all of the EV game players do not have very long histories, there will be a good opportunity for the Chinese players to win the championship.

Counteraction from Competitions 

The strong accomplishment of the Chinese EV industry drew the attention of US and European stakeholders. There was an indication that the EU might impose tariffs on EVs from China and began investigating unfair competition, including heavy subsidies provided to automakers exporting to Europe by the Chinese government.  The proportion of the local content in the proposed BYD Mexican plant was also challenged by manufacturers in the US.   To qualify for tariff benefits under USMCA, the current requirement is that 75% of vehicle parts must be manufactured within these three regions.  The US EV automobile manufacturers are requesting further tightening up the requirements.

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