The rise of BYD: From underdog to Tesla's biggest competitor

The electric vehicle (EV) race has a new frontrunner. In a surprising turn of event, a Chinese manufacturer, BYD, outsold industry titan Tesla in the final quarter of 2023, selling over half a million electric cars. Who is this challenger that has suddenly surged ahead in the global EV market, and how did they do it? In this article, we explore the different factors that contributed to BYD’s success.

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Cost savings through vertical integration

This unexpected rise can be traced back to BYD's origins. Founded in 1995, the company capitalized on a shift in the battery market, moving from nickel-cadmium (NiCd) to nickel-metal hydride (NiMH) and lithium-ion (Li-ion) batteries. They used a non-conventional approach, opting for a more labour-intensive, cost-minimizing approach, which proved successful due to China's lower labour cost environment. This strategy propelled them to become the world's second-largest producer of NiMH batteries and the third-largest in Li-ion batteries by 2002,capturing a staggering 65% of global production.

Leveraging their battery expertise, BYD then strategically expanded into the automotive industry in 2003 by acquiring a state-owned car manufacturer. Their battery background proved invaluable as they made a pivot into the EV industry and pioneered the world's first mass-produced plug-in hybrid electric vehicle (PHEV) in 2008.This innovation, coupled with the Chinese government's strong push towards "new energy vehicles" (NEVs), significantly boosted their domestic sales and allowed them to gain a foothold in the industry.

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Superior battery technology

To fend off intense competition from both domestic and foreign rivals in the EV space, BYD had to innovate constantly, and their advantage in batteries is not the result of one breakthrough, but an accumulation of strengths built over decades. Unlike some competitors who rely heavily on in-house development, they embrace an open innovation strategy, actively collaborating with external parties including universities, research institutions, customers, and even peers. This allows them to tap into a wider pool of expertise and respond quickly to evolving customer demands. Through these innovation efforts, BYD was able to roll out its blade battery technology in 2020 as a key gamechanger in the industry. Designed to offer new levels of safety, durability, performance, and even battery space utilization, this innovation propelled them to the forefront of the EV battery market, at the same time giving their vehicles an edge over others.

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Blue ocean approach to market expansion

As they grow and set their sights beyond China, BYD strategically entered new markets by focusing on electric bus fleets as their beach head. This is a smart move as governments worldwide are pushing for consumers to switch to cleaner vehicles, and they led the way by introducing greener modes of public transport. By supplying entire fleets, BYD can negotiate bulk deals and establish long-term partnerships with local governments and transportation authorities. This allowed them to enter new geographical regions and made it easier for them to target consumer markets subsequently.

Furthermore, BYD remains committed to affordability. In sharp contrast to Tesla’s initial focus on the high-end market, BYD offers a range of six high-volume electric car models priced significantly lower than even the cheapest Tesla Model 3sedan available in China. This strategic pricing decision broadens their market reach, making electric vehicles accessible to a wider consumer base. By focusing on both innovation and affordability, BYD is carving its own path in the increasingly competitive EV landscape.

At this point, BYD is well on its way to dominating the EV industry. Starting off as amass-market EV brand, they begun expanding into the luxury car segment. In January 2023, they launched the Yangwang ultra-luxury brand and began deliveries of the brand’s first vehicle in December. In 2024, Yangwang has also showcased its premium brand's first sedan at the Beijing auto show. With a brand targeting mass market and a sub-brand focusing on affluent consumers, BYD looks to capture more market share.

What’s next for BYD?

Will BYD keep dominating the EV industry? With a strong control over its supply chain, investment in R&D, and new range of products released every year, it will be hard to overtake them. Yet, competition is fierce in this industry with the rise of many other EV players, and with Tesla also intending to target mass market in mid-2025.

What will be next for BYD then? Many do not realize that BYD’s greater ambition is to be an energy ecosystem company, and selling passenger vehicles is just a first step. Beyond electrifying fleets of commercial vehicles, BYD is also looking at solar power systems and energy storage. Some analysts expect the company to incrementally integrate its products within a city’s transportation and data management system. EVs were simply a natural transition, but at its core, BYD is a battery company. Like Tesla’s greater mission to accelerate the world's transition to sustainable energy, it’ll be interesting to follow BYD on their journey to create a complete, clean-energy ecosystem.

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