Why these two countries could be key to BYD’s global domination

A consumer looking at a BYD electric vehicle in Budapest, Hungary in October.

A consumer looking at a BYD electric vehicle in Budapest, Hungary in October.

More than 5,000 electric vehicles were loaded onto a giant shipping carrier in China this week and sent to ports in Europe.

The cars come from BYD, the Chinese carmaker that is backed by Warren Buffett and has surpassed Tesla as the world’s biggest seller of electric vehicles (EVs).

The automaker enlisted the massive vessel, dubbed “BYD Explorer No. 1,” to ferry its exports from the southern Chinese city of Shenzhen to Germany and the Netherlands on its maiden voyage, according to Chinese state news agency Xinhua.

It’s a striking visual example of the growing heft of BYD, which has conquered its home market but now needs to navigate new roads to maintain its momentum.

To do so, two countries will be crucial: Hungary and Mexico. While neither is a vast car market, they could serve as gateways to Europe and North America, bolstering the company’s quest to truly become a global household name.

Electric cars waiting to be loaded onto "BYD Explorer No. 1," a shipping carrier vessel intended to export BYD vehicles, at Yantai port in eastern China's Shandong province in January.

Electric cars waiting to be loaded onto “BYD Explorer No. 1,” a shipping carrier vessel intended to export BYD vehicles, at Yantai port in eastern China’s Shandong province in January.STR/AFP/Getty Images

BYD has started making inroads in both places. In December, it pledged to open a factory in Hungary, which will be its first production plant for passenger cars in Europe. Prime Minister Viktor Orbán’s government has said it is one of the largest investments in the country’s history, and will create thousands of jobs in the southern city of Szeged.

The company is also considering setting up shop in Mexico. It has expressed its interest in building a plant in the country, though as of January, no plans have been officially confirmed, a source with knowledge of the matter in the government of the southeastern state of Yucatán told CNN. BYD Mexico did not respond to a request for comment.

Experts say that expanding in Hungary and Mexico will help the Shenzhen-based company gain footholds on opposite sides of the Atlantic while avoiding hefty tariffs. The plans might also help BYD navigate a tough geopolitical environment, particularly as some European politicians grow increasingly wary of what’s been deemed a “flood” of Chinese EVs.

But those who have long watched BYD, a brand that was once relatively unknown overseas and even scoffed at by Tesla (TSLA) CEO Elon Musk in 2011, say the anticipated moves are not merely a reaction to growing protectionism.

“I would look at this as a continuation of their global expansion and manufacturing footprint,” said Tu Le, founder of consulting firm Sino Auto Insights. “It’s no secret that they have grand ambitions for global domination.”

Two new conduits

Hungary, a small, landlocked country of 9.6 million people, has emerged as an increasingly important production hub in Europe for automotive suppliers, particularly from China.

Chinese firms, such as battery giant CATL and carmaker Nio (NIO), have invested heavily in manufacturing in the country in recent years, alongside German competitors Mercedes, BMW and Audi. BYD already had a presence there, opening an electric bus facility in the city of Komárom in 2017.

With its new plant in Szeged, the company will gain free trade access for its passenger vehicles as well. And not just to Hungary — a longtime economic partner of China — but 26 other members of the European Union, according to Matthias Schmidt, a European autos analyst who leads the firm Schmidt Automotive Research.

It will also be able to reap “all the benefits that Western European countries provide at a fraction of the cost,” he told CNN, citing lower labor and energy costs in Hungary than those in other regional automotive hubs such as France or Germany.

While the site has likely been planned for years, experts say it is especially timely, because it will allow BYD to dodge European tariffs of 10% on cars imported from the world’s second largest economy, along with any further duties imposed as a result of an ongoing EU investigation into China’s state support for EV makers.

The probe was announced last September by the European Commission, which said it was seeking to decipher how prices of EVs imported from China were “kept artificially low.”

European tariffs are expected to rise after the conclusion of the probe, though BYD will likely be able to avoid paying more, said Schmidt.

Bill Russo, the Shanghai-based founder and CEO of strategy consultancy Automobility, echoed that view.

Unless lawmakers draw up new rules that target a brand’s country of origin — in this case, China — rather than its country of production, BYD’s Hungarian factory should allow it to skirt those duties, he said.

A similar setup would be expected in Mexico. Currently, BYD does not sell passenger vehicles in the United States, where Chinese-made cars face steep import duties of 27.5%.

That could soon change if the automaker sets up production in Mexico, where it sells buses and cars.

According to the United States-Mexico-Canada Agreement (USMCA), the trade deal that replaced NAFTA in 2020, 75% of each passenger vehicle must be made in North America to avoid tariffs.

Because Mexico is part of the deal, it’s become more attractive to Chinese automakers.

The country can serve as “an entry point for manufacturing and exporting into North America,” said Le. “The US government is not going to like that Mexico is creating a back door.”

A BYD electric vehicle, operated by Vemo taxi, in Mexico City in November.

A BYD electric vehicle, operated by Vemo taxi, in Mexico City in November.

Aside from perks such as lower labor and transport costs, Mexico is seen as a solid base for BYD because Tesla is building a facility in the country. The US automaker is now one of BYD’s battery customers, following an about-face from Musk.

“It’s not just an end product strategy for them,” said Le. “It’s also, ‘We’re going to sell batteries into the Latin American market. And guess what? One of our biggest customers is building a Gigafactory there. So it makes sense for us to be right next to them.’”

In September, BYD Executive Vice President Stella Li told Mexican news outlet El Sol de México that the company was eyeing a factory in the country, though it would depend on market response.

“If we see that there is a high demand, we will consider producing the vehicles here,” Li was quoted as saying.

Going global

BYD, which was founded by Wang Chuanfu, first cemented its reputation at home as a battery maker before pushing abroad.

The company’s maiden international foray was in 1998, through the creation of its first overseas subsidiary in the Dutch region of Rotterdam, where it set up a European headquarters and began importing batteries there.

While this was only three years after its founding, the firm didn’t sell any vehicles in Europe until about 14 years later, with the rollout of electric buses, forklifts and taxis in 2012.

Unlike some of its Chinese counterparts, BYD “had not prioritized overseas sales in the beginning,” noted Russo.

Instead, it focused on winning China, where it has managed to give longtime industry champion Tesla a run for its money.

Last year, BYD was the best-selling car brand in China, with vehicles starting at prices as low as $11,000.

But “they’re pivoting now, because I think they’ve reached the point where, in order to grow, they have to prioritize overseas sales,” Russo told CNN.

The numbers reflect this shift. BYD’s footprint now extends to more than 70 countries, up from more than 50 in 2020. The company is rapidly adding to existing overseas production in places such as California and Brazil, where it makes electric buses, with plans for new plants in Indonesia, Thailand and Uzbekistan.

In the first half of 2022, as much of 40% of BYD’s customers came from its home market, which it counts as mainland China, Macao, Hong Kong and Taiwan.

A year later, the company reduced that proportion to 33%, according to its most recent interim annual report.

BYD has logged aggressive growth in the exports of its vehicles, which surged last year by a whopping 334% to just under 243,000 units.

The jump likely helped China overtake Japan as the world’s number one car exporter in 2023.

But as it continues to grow overseas, BYD will have to take a more localized approach, analysts say.

To win the hearts and minds of politicians, as well as wallets of consumers, building factories near its key markets will be critical.

This shows willingness to create local jobs, which could help the company win goodwill, and “then result in what’s perhaps more favorable treatment from governments in the region,” said Russo.

“Geopolitics is a key weighing factor.”https://mendapatkankol.com

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