BYD owns its entire EV battery supply chain and its CEO is both a relentless cost-cutter and "natural engineer," as Charlie Munger put it.
When China’s BYD recently overtook Elon Musk’s Tesla as the global leader in sales of electric vehicles, casual observers of the auto industry might have been surprised.
But what’s caught other carmakers around the world off-guard is something else about BYD, which is backed by Warren Buffett’s Berkshire Hathaway: its low prices.
“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused car consultancy Dunne Insights, told the Financial Times. “Boardrooms in America, Europe, Korea and Japan are in a state of shock.”
BYD can keeps its costs low in part because it owns the entire supply chain of its EV batteries, from the raw materials to the finished battery packs. That matters because a battery accounts for about 40% of a new electric vehicle’s price.
Of course nobody can match BYD, they don’t just own the supply chain the Chinese government subsidizes every part in their supply chain. The Chinese government wants to crush foreign competitors. And before you say that Tesla gets subsidies, it’s no where near as extensive as the subsidies Chinese EV manufacturers get.
China doesn't need to subsidize the entire supply chain because the reason Chinese EVs are so cheap is literally hyper-capitalism. China has had an immensely competitive EV market for years, and they're been getting into price wars without government intervention. That's forced innovation at a pace that Tesla cannot match alone because they have no need to compete at such a pace. Here's a list of national EV subsidies and their status:
In 2022, the 12600RMB consumer incentive to buy a BEV vehicle was ended. This is rather similar to Biden's EV tax credit.
China has waived the consumption tax for the EV market, which is a tax designed to target environmentally-unfriendly products. The consumption tax is commonly applied to automobiles, but they're being explicitly waived for the EV market for what is hopefully an obvious reason.
Currently, the tax-free allowance for an EV (the portion of an EV purchase that is not charged VAT) is 30000RMB (@13% VAT, = 3900RMB). This subsidy is being reduced in 2025 and phased out entirely in 2027. This is also rather similar to Biden's EV tax credit.
Costs of EV charging/battery switching on the grid are borne by the government because the government manages electricity on the supply-side, including finding producers and managing distribution. This is not unusual of crown corporations in other countries.
While there are provincial incentives for companies to set up shop in one province over another, they're smaller scale, not received support at the national level, and not unique to China (see: subsidies to Tesla for their production and to Amazon for their HQ2). The most unique element of China's subsidy regime is the elimination of excess consumption tax in the EV market, which has created a huge marginal advantage for developing EVs over developing ICE automobiles. Importantly, that subsidy is simply reducing the excess tax charged on automobile manufacturing over that charged on typical consumption.
It can be all that, and subsidize. Some of it is a form of subsidizing. I'd say big picture subsidizing for the environment is ok. The raw market is prone to anti-competitive practices, catch 22, tragedy of the commons, etc. You want the unseen hand and some planning. A mixed economy. Which is what we all have in some form, outside of lawlessness of failed states, where drug/war lords rise and set their own laws/regulations anyway.
Subsidiaries enabling a more rapid transition away from fossil fuels by lowering the cost to consumers is a great thing, and what's even more impressive is they're also using subsidized projects to install high-speed or low cost rail lines all over the world.
It's great that there's a country working so hard to help is turn the corner on climate change especially as they're focusing on making life better for the working classes. The country has lots of problems but we all do, they're also doing great things which I think we could learn a lot from them.
And don't underestimate, that Human Right Violations are a competitive advantage, too. You don't even need to argue with slave labor from Uygurs, but not allowing unions and having really low labour standards brings the costs down.
So China investing in their manufacturing capabilities are resulting in better prices to customers. Western subsidies result in better paychecks for management or act as a feedback loop in the form of lobbying.
That view is unfortunately out of date. Many Chinese products are of equal or superior quality to their global counterparts. Think Lenovo laptops and OnePlus smartphones. Chinese stuff can be cheap and high quality.
In my own experience trying the waters for a business importing and selling LED Light Bulbs from China, they're a mix of little crappy companies and large more well established ones and the larger ones are perfectly capable of designing and making good products but due to the market pressure for "make it as cheap as possible" end up mainly cutting down on component quality and using cheaper designs to make it cheaper.
Sure, the tiny companies are generally crap and the local culture (at least in Electronics, and at the time which was a decade ago) was to expect things to be cheap and break down often, but the larger companies are professional and can actually make quality products, its just that they generally are very weak in branding so can't really get people to pay them for quality, hence end up either mainly competing on price or working as suppliers for non-Chinese companies which are little more than Brand-management outfits (which is pretty what all big name Brands in the West are nowadays - managers of one or more famous brands, not creators of superior products).
Yeah but lots more Chinese stuff is cheap shiny trash. If there's a way to lie and cut a corner they'll ,do it...not that America would be any different but they dont make anything here anymore.
That's what the British car industry said in the 60s and 70s about Japanese cars. Everyone bad mouthed anything made in Japan as being poor quality.
The Japanese succeeded through good products and their domestic rivals (in Britain) being arrogant, xenophobic and letting standards slide thinking they were great and couldn't be beaten.
I've a Japanese Honda CRV (ironically built in UK) and a Chinese built MG5 EV. The EV is best built car I've owned in 35 years.
Many established car brands are going to disappear Tesla, I believe, being one.
I once read that the failure of British industrial policy to engage labour as a long term competitive edge instead of a dispensable short term concern saw Germany overtake British car makers. Germany dealt with labour strikes more comprehensively by engaging labour in policy structures. Like including Labour representatives in boardrooms.
I wonder how this may reflect on Chinese / Western competitiveness.
Your iPhone / Samsung is manufactured there. So no, that's a bad take. You get what you pay for, and good quality is still cheaper than made elsewhere.
The BYD cars they sell in the West are pretty decently build. I’d be more worried about the aftersales services. Chinese electronics companies always have shitty customer service. Like Lenovo and Huawei. And since a car always needs some repairs during its lifetime I will never buy an EV from a Chinese brand unless they have proven to have good aftersales service.
Not to mention: I’ll eat my hat if the CCP isn’t providing some sort of subsidization, for no other reason than the fact that it’s a national pride thing for them
Is this another case of subsidizing the product to sell the data? Information over each individuals driving habits, audio from the car, connection to the phone. Could be valuable to the CCP.
That it is happening is the issue, foolish to think that it is only the CCP that would be interested in doing this and not say the largest military industrial complex in the world known for over extending and threading on the rights of people across the globe.
When China’s BYD recently overtook Elon Musk’s Tesla as the global leader in sales of electric vehicles, casual observers of the auto industry might have been surprised.
But what’s caught other carmakers around the world off-guard is something else about BYD, which is backed by Warren Buffett’s Berkshire Hathaway: its low prices.
While BYD cars are not yet a common sight on American roads, many experts believe it’s only a matter of time, despite the high tariffs that help keep them at bay for now.
But BYD is planning to export much cheaper models to markets around the world, including Europe, South America, and Southeast Asia.
In November, House lawmakers warned about Chinese giants like BYD “gaining a back door to the U.S. market” through the southern neighbor.
BYD also has the advantage of its founder and CEO Wang Chuanfu, a relentless cost-cutter whom the late Charlie Munger—Buffett’s long-time partner at Berkshire—described in one of this final interviews last year.
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I drove an atto 3 and a Mercedes gla, both for an extended weekend, same destination. I would always pick atto. Better features, easier to use and, most important, actual room to store stuff for the family. Especially the head and legroom in the back, it's not even funny how cramped the back seats in German cars are. We have been hustled.