Electric car maker Tesla has a Chinese rival in its rear-view mirror.
Shares in BYD, or Build Your Dreams, jumped this week after it said it expected third-quarter profits to more than double compared with last year.
BYD is now ahead of Tesla in quarterly production – and second to the US car maker in global sales.
Its success is also a sign of just how much China’s auto industry is growing – China overtook Japan this year to become the world’s biggest exporter.
But, on the less bright side, Beijing’s tensions are also growing with many of the countries – not least the US and European Union nations – that are export markets for its electric vehicles or EVs. As the world shifts to new, cleaner technologies, this is yet another example of how tough it will be for Western countries to move away from their reliance on Chinese goods.
It had an advantage from the start: unlike car makers who expanded to build electric models, BYD was originally a battery company that later started making cars.
Its chief executive Wang Chuanfu, now reportedly worth $18.7bn, was born in Wuwei County to a family of farmers in one of China’s poorest provinces in 1966. Mr Wang was orphaned as a teenager and raised by his older brother and sister.
After earning degrees in engineering and the physical chemistry of metallurgy, he co-founded BYD along with his cousin in Shenzhen in 1995. The duo made a name for themselves as manufacturers of rechargeable batteries – used in smartphones, laptops and other electronics – that competed with pricier Japanese imports.
It became a publicly traded company in 2002. And it soon diversified by purchasing a struggling state-owned car manufacturer, Qinchuan Automobile Company.
EVs were still in their infancy then but Beijing officials were looking for a gap in the market that China could fill. In the early 2000s, they introduced subsidies and tax breaks as the government prioritised renewable energy production.
For BYD, it was the perfect timing. The batteries it had been making were effectively the engines that would power EVs.
In 2008, US billionaire investor Warren Buffet bought a 10% stake in BYD Auto, saying that it would one day become “the largest player in a global automobile market that was inevitably going electric”.
And he was right. Today, China dominates global EV production largely because of BYD. And Beijing is keen to retain that lead – last June, it offered EVs $72.3bn worth of tax breaks over four years – the biggest incentive at a time when sales have slowed.
Analysts say BYD owes its growth to its original business – batteries. They are among the most expensive parts of an EV and making them in-house saves BYD a lot of money. Competitors, including Tesla, rely on third-party manufacturers for batteries.
“The BYD Seal has a 15% advantage over Tesla’s Chinese-made base Model 3 sedan,” according to a UBS report.
BYD’s entry level EV – Seagull – sells at $11,000. Tesla recently unveiled a Model 3 sedan, whose starting price in China was almost $36,000.
And the Chinese company seems to be a hit beyond the EV market too – it beat Germany’s Volkswagen as China’s top-selling car brand earlier this year.
BYD versus Tesla
Elon Musk laughed during a 2011 television interview when asked about BYD and Chinese competitors. At the time, Tesla was still a young publicly-traded company and had just unveiled a prototype of the first car they would launch – Model S.
Today, Mr Musk is probably regretting his response. Tesla sold 74,073 Chinese-made EVs in September, almost an 11% decrease compared to the previous year, according to recent data from the China Passenger Car Association.
This is a stark contrast to BYD, which sold 286,903 cars during the same time period. That’s an almost 43% jump in sales of EVs and petrol-electric hybrid models.
The ironic twist is that Tesla is credited with the growing popularity of EVs in China. Green incentives did not entice customers to buy EVs until Tesla arrived.
Even now, it is “one of the favourite EV brands in China,” said auto analyst Ivan Lam from Counterpoint Research, adding that it is still popular among younger buyers.
When China, the world’s largest car market, wanted to bring more EVs to the country, it loosened the rules to allow foreign firms to fully own manufacturing and sales operations in the country. Before that, companies such as General Motors and Toyota needed a local partner even to build a factory in China.
When that changed, Tesla jumped at the opportunity. Even today, Tesla is the largest exporter of China-made EVs and the second-biggest seller of EVs in China.
Mr Musk has ambitious plans to expand his footprint in China and build enormous, battery warehouses that would act as an EV grid of sorts, powering charging stations.
But as tensions between Washington and Beijing grow, he has also turned his attention to India, which is selling itself as an alternative competitor to the Chinese market. Mr Musk has said Tesla will be in India “as soon as humanly possible,” after a meeting last June with Indian Prime Minister Narendra Modi.
The lane is quickly narrowing for legacy carmakers, whose business is still powered by fuel engines. Analysts predict a seismic shift by 2030 as green incentives to combat climate change expand.
Car manufacturers from Europe and the UK are struggling to compete. But wariness of China might prompt regulation that will make Europe’s market less accessible to competitive Chinese car makers.
The European Commission has launched an investigation into whether to set tariffs to protect EU manufacturers from a “flood” of imported, cheaper Chinese EVs, which it says benefit from Beijing’s subsidies. Its president Ursula von der Leyen said the EU had not forgotten how its solar industry was hit by China’s “unfair trade practices”.
But for now, BYD’s affordable, green cars are a hit in Europe, which is grappling with inflation and energy costs.
The home of Mercedes Benz, BMW and Volkswagen is struggling to keep up its production of EVs to the global market and the evidence was on display at Europe’s biggest car show in Munich in September – Chinese EVs were the hot topic.
“There’s demand everywhere in the world for affordability. And that’s a universal value proposition,” Mr Russo says.
And the place that can offer that to the world right now, he adds, is China.