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Will a Chinese branded car with a starting price of $230,000 become a more common sight in the future? After overtaking Tesla as the world’s largest electric-vehicle maker last year, BYD has started releasing higher end models, the latest being its Yangwang U9 electric sports car with that price tag, to try its luck in the high-end luxury segment.
Catching up with the formidable branding power of the likes of Ferrari is a tall order. But there is a strategy behind the Chinese electric vehicle giant’s move to widen its range of offerings — not only by price point but also by fuel type.
Along with the U9 sports car, BYD has launched new versions of its plug-in hybrid cars and an aggressive marketing drive to expand in this market. Hybrids, equipped with both batteries and a traditional internal combustion engine, may seem to some like a step backwards for the world’s best-selling EV maker.
But what if BYD, mostly known for its affordable EVs, wants not only to cut into Tesla’s market share, but to challenge the world’s two biggest automakers, Toyota and Volkswagen? Then turning to hybrids would make lots of sense.
BYD launched a new version of its plug-in hybrid sedan Qin Plus DM-i with a lower starting price of about $11,000, down a fifth from the previous version, as well as newly launched Han sedans, available as plug-in hybrids and battery electrics, and the Tang hybrid SUV in recent weeks.
That puts BYD in direct competition with gasoline cars. The Qin hybrid is priced 40 per cent lower than Toyota’s Corolla, about a tenth lower than VW’s Lavida and about half that of other pure hybrid models such as Toyota’s Prius in the Chinese market.
Its European strategy is similar. Its new plug-in hybrid Seal U DM-i, which has a starting price of $23,000 in its home market, is set to go on sale in the coming months. The model’s battery-only driving range of 68 miles is enough to cover the average of 18 miles a day that cars in the UK are driven.
The timing is opportune. Hybrid sales are surging around the world. In the US, they rose nearly two-thirds last year, outpacing the 46 per cent increase in EV sales. Total hybrid sales of about 1.2mn cars matched EV sales figures. For Toyota, hybrid sales increased 47 per cent year in the December quarter, far outpacing total group sales growth of a tenth.
In Asia, the trend is even more pronounced. In Japan, hybrids accounted for 55 per cent of total sales of standard-sized passenger cars last year. In South Korea, hybrid cars accounted for nearly a third of all new registrations last month, according to the Korea Automobile & Mobility Association, adding to sales growth of more than 40 per cent last year.
At the same time, BYD is doubling down on a big bet to move upmarket. Its announcement to invest $14bn to develop smart cars to take on rivals in the premium segment last month follows its launch of its electric supercar and luxury off-road hybrid sport utility vehicle.
During normal times, critics would see this strategy as too diversified to be competitive. But during the current period of unprecedented change for automakers, a new approach is in order. EVs are getting cheaper and sales are growing. But nearly all the world’s purely electric carmakers remain lossmaking. Hybrids, on the other hand, use older technology and offer automakers lucrative production-cost advantages. Toyota’s strong 14 per cent operating profit margins, is partly thanks to growing hybrid sales, which accounts for about a third of total sales.
For BYD, the profitability boost is starting to show. Despite price cuts in recent years, operating margins have risen to more than 5 per cent, from 3 per cent two years ago as hybrid sales grew. In south-east Asia where Toyota has had a decades-long stronghold, BYD’s wide range of offerings is already proving a successful strategy in winning over market share. Less than two years into entering Thailand, the region’s second-biggest auto market, BYD holds the position as the biggest EV maker and the third-largest automaker for the overall passenger car market, according to research company Counterpoint.
Electric cars surely play a role in the decarbonisation of the world, but unexpected factors including raw material shortages and a lag in EV infrastructure rollouts suggest the transition is likely to be a far more drawn out affair than previously expected. During this transition, automakers able to build a balanced portfolio of electric, gasoline, and hybrid offerings will outperform their peers.
