Tesla rival BYD enters emerging markets amid Western uncertainty

In the race against Tesla for the global electric car market, a Chinese automaker BYD is pushing hard overseas despite growing barriers to the US market.

The Shenzhen-based company has already tested the waters in a number of countries with some immediate sales success, often just a year after entry.

Given the political uncertainty surrounding exports of Chinese electric cars to major markets such as the US and Europe, BYD is looking to boost overseas sales by moving production to regions perceived as friendlier. The company already has factories in Thailand, Brazil, Indonesia, Hungary and Uzbekistan are in the works.

“They are targeting countries without a very strong domestic auto industry, where they are likely to face less political pushback or headwinds from a political perspective,” said CLSA researcher Xiao Feng, noting that recent events in the US have highlighted the need from such an approach.

Last month, the Biden administration said it had launched an investigation into whether Chinese-made cars posed a national security risk and raised the possibility of restricting the vehicles. The US has tried to support the adoption of electric cars in the country, but sales penetration is well below that in China.

BYD is moving quickly, starting with Thailand, where the company expects its first factory outside of China to be operational by the end of this year. The automaker overtook Toyota to grab the top spot for passenger car sales in Thailand in January, despite having no sales there just a year earlier, according to data from Marklines.

Once operational, the Thailand factory will likely serve the rest of Southeast Asia. EY forecasts the electric car market in the region will grow exponentially to at least $80 billion annually in sales over the next decade.

BYD has established itself in Southeast Asia as the best-selling EV brand, grabbing more than a third of the market last year after selling almost no cars there before, according to data from Counterpoint Research.

BYD sold 70,000 electric cars in Southeast Asia last year with a 35% market share, putting it ahead of rivals Vinfast and Tesla, according to data from Counterpoint Research.

One of BYD’s advantages over Tesla is its range of mass-market offerings, as well as a mix of hybrid and battery cars. Tesla exclusively manufactures more premium-priced, battery-only cars. The availability of hybrid options benefits emerging markets where battery charging infrastructure remains limited.

Southeast Asia is likely to remain BYD’s strongest overseas market in the short term as the company pursues its goal of doubling car exports from last year to 500,000 in 2024, according to Canalys auto analyst Alvin Liu.

“The EV market in Southeast Asia is still in its infancy and consumer habits need to be cultivated,” Liu said. “Cost efficiency” is particularly important, he added, with BYD’s Atto 3 and Dolphin models sold in the region at very competitive prices.

The company is also investing $1.3 billion to build an electric car factory in Indonesia in 2024. local media reported in January. This year and BYD it is reported plans to significantly increase the number of its stores in Singapore and the Philippines.

The company did not respond to a request for comment on the reported plans.

Although BYD does not break out capital spending by country, it disclosed 81.52 billion yuan ($11.33 billion) in auto-related capital spending in the first six months of 2023, nearly double the 45.94 billion yuan , reported for the whole of 2022.

In another contrast to Tesla’s direct dealership model, BYD often relies on local distributors and sales partners in countries outside of China. For example, at the end of 2022, BYD signed a distribution agreement with Sime Darby Motors in Malaysia.

While America’s grip on electric vehicle dominance in China only grows, BYD is expanding its operations in Brazil and targeting Mexico, on the US border.

The company’s CEO for the Americas, Stella Li said Reuters BYD is mulling plans for a factory in Mexico, where it has begun selling more electric cars.

If BYD does build a factory in the country, it could make it a “beach for America,” Bill Russo, founder and CEO of investment advisory firm Automobility, recently told CNBC’s “Squawk Box Asia.”

“Mexico is part of the USMCA, so there is an opportunity to export maybe from Mexico to North America,” he said, referring to the free trade agreement the United States, Mexico and Canada agreed to in 2020.

BYD has no plans to sell passenger cars in the U.S., Li reportedly said at the end of February.

The automaker did not respond to a request for comment for this story.

China remains BYD’s biggest market. Of the more than 3 million new energy passenger vehicles produced by the company last year, just over 242,000 went overseas.

The rapid growth of BYD and other Chinese electric car companies worries other automakers.

In February, the Alliance for American Manufacturing released a report a warning that cheap Chinese imports could be an “extinction-level event for the US auto sector” and called on Washington to prematurely block imports from Mexico.

This was just weeks after the company’s publications confirmed that BYD is well ahead of Tesla in terms of car production.

The global push to go electric has given Chinese automakers potential market opportunities, especially after growth has slowed at home.

“BYD should look for more overseas opportunities in other regions where EV penetration will accelerate with the development of infrastructure for its long-term sustainable growth without losing share to US and European automakers,” said Liz Lee, associate director at Counterpoint Research.

BYD announced late last year that it would open a factory in Hungary, and in January said that production would starts in three years.

The news comes just months after the European Union announced an investigation into the role of subsidies for Chinese-made electric cars.

BYD also sells cars in Australia, the Middle East and Africa, and in January announced the launch of the production at the jointly owned facility in Uzbekistan.