Drop in subsidies hits Chinese EV producer BYD's sales
The Chinese government’s cut in subsidies for electric vehicles (EVs) has hit the world’s largest producer of EVs hard. BYD’s first quarter sales fell 34%, threatening to reduce annual revenues from the $14.5bn the company made last year. Profits also fell over the same period by 29% to $88m. The company plans to extend its electric vehicle fleet to sell electric trains, buses and taxis to local governments and to extend production to try to lower manufacturing costs. Overall sales of EVs in China last year was 507,000.
Now BYD, which had revenue last year of $14.5 billion from cars and a variety of other battery-powered products, is trying to figure out how to cut the cost of each car without killing its profits. Its solution is to expand its fleet of electric vehicles, selling more electric buses, trains, and taxis to local governments, and to expand its overall production to drive down manufacturing costs.

Low costs are how BYD got its start. Founder chemist Chuanfu Wang launched the company in 1995 with $300,000 raised from family. He and a team of 20 employees studied patents of other battery makers and then dismantled their batteries to see the components and how they were put together. They had to figure out the proportions of all the chemicals and the right manufacturing environment, and it took them half a year to determine how to manufacture without the kind of humidity controlled dry rooms that rivals like Sanyo used.

Using cheap labor, Wang designed a system of semi-automated production, and by 2002, he was employing 17,000 workers, and BYD was one of the world’s top manufacturers of nickel-based batteries and lithium-ion batteries.

As the battery market for electronics matured and BYD faced increasing competition in China with the entry of new Chinese rivals, Wang branched out into cars, seeing the nascent sector as a way to leverage its manufacturing capabilities, and in time develop electric vehicles that could be powered by BYD’s batteries.

Initially Wang followed the same copycat method he’d used with batteries, developing BYD’s first model, the $6,000 F3 compact sedan, by having a crew of engineers take apart the Toyota Corolla to see how the engine and body might be re-created. The F3, a pretty good copy of a Corolla for less than half the price, became one of the best-selling cars in China, and within about five years BYD was outselling big names like Volkswagen and Toyota (see “China’s New Green Machine”).

Soon engineers created a “dual mode” plug-in battery and gasoline engine vehicle that was cheaper and more efficient on a single charge than the Toyota Prius at the time. This one didn’t require reverse engineering. BYD already knew batteries, electric motors, and controlling systems, so it combined all the technologies together to form its own homegrown hybrid.

BYD’s timing was perfect. Trying to thwart slowing economic growth, in 2015 government leaders announced the “Made in China 2025” initiative focused on a few key sectors, one of them clean energy vehicles (see “China Wants to Replace Millions of Workers with Robots”). Their target is to sell seven million over the next decade, two million of that by 2020.

Chinese leaders created large subsidies for electric vehicle purchases, sparking an electric car revolution in China. BYD’s auto sales have increased roughly 45 percent annually over the last two years.