China’s Auto Takeover: BYD Vs. Tesla And The Battle For EV Supremacy | CNBC Marathon

Introduction (0s)

• In 2023, BYD produced over 3 million new energy vehicles, growing into a powerhouse and consistently ranking at the top in monthly rankings (0s).
• American and European car manufacturers produce vehicles with inferior software and outdated chips compared to their Chinese counterparts (11s).
• Major American car brands have seen significant declines in sales, with GM sales down by over 50%, Ford sales down by over 60%, and Jeep going bankrupt in China (18s).
• The US government has imposed tariffs on Chinese automakers, with President Biden effectively doubling the price of Chinese export EVs and Donald Trump pledging a 100% duty on cars made in Mexico by Chinese companies (26s).
• Despite these tariffs, Chinese automakers are expected to enter the US market eventually, regardless of any trade barriers (39s).

How Chinese EV Giant BYD Is Taking On Tesla (Published March 2024) (51s)

• Tesla's dominance in the electric vehicle market is being challenged, particularly in China, where it has been losing ground to domestic automakers due to a price war, with sales potentially dropping last year if not for price cuts of 20 to 30% (1m8s).
• Warren Buffett-backed BYD has become a major competitor, logging 2.4 million new car insurance registrations in 2023 and becoming the top brand in China with a market share of 11% (1m28s).
• BYD's growth has been explosive, with the company producing over 3 million new energy vehicles in 2023, surpassing Tesla's production of 1.84 million cars, and dominating the Chinese market (1m54s).
• Chinese carmakers, including BYD, were initially dismissed by their rivals but have become a serious threat, not only in China but also globally, with ambitions to expand into markets such as Australia, Japan, Europe, and the United States (2m29s).
• BYD's exports grew 334% to 242,765 vehicles across 70 countries in 2023, with the company expected to enter the top five automakers in the world by 2026, according to CLSA predictions (2m36s).
• BYD was originally started as a battery company in 1995 by Wang Chuanfu in Shenzhen, China, and began supplying batteries to customers such as Motorola and Nokia before entering the auto business (3m21s).
• The company launched its first internal combustion car in 2005 and its first plug-in hybrid EV in 2008, with its early cars being mediocre commuter cars powered by Mitsubishi engines (3m57s).
• BYD unveiled its first fully electric vehicle, the E6, in 2010, but it wasn't until the launch of new products such as the Tang and the Han, designed by German designers, that the company's auto division began to see significant growth (4m23s).
• In 2019, BYD's sales were declining, but the company managed to turn things around, stopping production of its ICE vehicles in 2022 and focusing on building battery electric and plug-in hybrids (5m19s).
• BYD's majority stake in the mass market has helped with volume, and the company's gradual shift into pure electric vehicles has contributed to its success (5m27s).
• BYD is backed by Warren Buffett's Berkshire Hathaway and is considering entering the US market (5m40s).
• Warren Buffett invested in BYD in 2008, acquiring a 10% stake in the company, citing his confidence in the company's founder, Wang Chuanfu, despite not fully understanding the technology or the China market. (5m46s)
• Buffett's investment was primarily due to BYD's battery business, which has grown significantly alongside the company's vehicle sales, with BYD's stock increasing by over 1,400% since the initial investment. (6m9s)
• Berkshire Hathaway has since reduced its stake in BYD, selling over 60% of its shares, possibly due to geopolitical concerns and the price war ignited by Tesla in the EV market. (6m24s)
• BYD's winning strategy is centered around its competitive pricing, with many of its vehicles undercutting the competition, such as the Seagull, which was launched at a price of $11,500. (7m7s)
• The company's expertise in battery design, development, and engineering has also contributed to its success, with BYD supplying batteries globally and planning to build battery plants worldwide. (7m18s)
• BYD is a leader in lithium iron phosphate (LFP) battery technology, which is 30-40% cheaper to manufacture and extremely durable, with the company supplying batteries to other carmakers like Tesla, Toyota, and Kia. (7m39s)
• In 2020, BYD launched the Blade battery, a breakthrough in high energy density with high levels of safety, which is considered best in class globally. (8m3s)
• BYD is not only present in the passenger car market but also manufactures trucks, buses, and other vehicles, including electric buses sold in the US. (8m31s)
• The company offers a range of passenger car models at various price points, including the Dynasty series, the Han sedan, and the Ocean series, which appeals to younger consumers. (8m58s)
• BYD has also introduced luxury sub-brands, such as Denza, a joint venture with Mercedes-Benz, which has developed new vehicles, including the D9 luxury minivan and the N7 and N8 SUVs. (9m55s)
• Yang Yonghuang, a luxury car brand created in 2023, targets the high-end segment with a supercar, the U9, and a luxury SUV, the U8, while its next car, the U7, will have quad electric motors with a range around 500 miles (10m37s).
• Fangsheng Bao, another brand created in 2023, launched its first vehicle, the Bao five, in November last year, and is part of BYD's effort to enter the luxury segment of the market (10m44s).
• Most automakers, including BYD, try to create halo vehicles that reflect well on the rest of the brand and create an image for the brand, showcasing their growing confidence and ability to compete with established luxury brands (11m8s).
• As the leading electric carmaker in China, BYD has set its sights on bringing its cars to other markets, starting around 2018-2019, due to slowing domestic markets and dropping margins (11m34s).
• BYD is a major player in Southeast Asia, with 43% market share in EVs, and is the top-selling EV maker in Thailand, Brazil, Colombia, and Israel, with plans to double sales in the Philippines and Singapore this year (11m58s).
• The company has started selling in Mexico and is looking to enter Japan, while also launching the Dolphin in Mexico and growing its presence in South America, where Tesla has a limited presence (12m21s).
• BYD is building up its presence in Europe, selling 13,000 vehicles last year, and has its own massive cargo ship capable of carrying 7,000 vehicles, which recently delivered 3,000 cars to Germany (12m39s).
• The company's strategy is to have as much as possible in-house, including the ship, to control costs and ensure extreme control over its operations (12m54s).
• Europe is BYD's top priority overseas due to legislation promoting electric vehicles, people with money to buy them, and decent charging infrastructure (13m5s).
• However, the company faces obstacles abroad, including an EU investigation into subsidies for Chinese-made electric vehicles, with the EU Commission questioning the costs and competitiveness of BYD's products (13m17s).
• BYD received approximately $4.3 billion in state support between 2015 and 2020, according to Rhodium Group estimates (13m49s).
• The company is preparing to enter the US market, waiting for the right timing, but faces challenges due to tariffs, including a 25% tax on Made in China EVs and a 2.5% tariff on imported cars (13m58s).
• To gain a foothold in the North American market, BYD has announced plans to build a factory in Mexico, where China is already the number one supplier of cars (14m40s).
• Chinese automakers are likely to build manufacturing plants in Mexico, with some already researching potential sites, and plan to ship vehicles to the US starting after 2025, taking advantage of NAFTA to eliminate tariffs (14m52s).
• Within the next 5-6 years, several Chinese automakers are expected to begin final assembly in Mexico, making their vehicles more competitive in the US market (15m13s).
• The possibility of Chinese automakers flooding the US market and threatening domestic automakers is a concern for US lawmakers, particularly with the UAW having recently negotiated record-high wages and perks (15m36s).
• In Australia, Chinese automaker BYD has grown significantly since entering the market in 2022, now holding 14% of the EV market, while Tesla leads with a 53% share (15m56s).
• Chinese car companies are considered the most competitive in the world and are expected to have significant success outside of China, depending on trade barriers and tariffs (16m13s).
• Without trade barriers, Chinese automakers may "demolish" most other car companies in the world due to their ability to produce appealing and affordable vehicles (16m24s).
• Chinese automakers have quickly learned to produce high-quality vehicles, making the rest of the industry wary of their growing ambitions (16m37s).
• China currently has the capacity to deliver half of the world's demand for vehicles, with their strength, low cost, and improved designs and quality making them a formidable force in the industry (16m50s).

Why American Automakers Are Failing In China (Published May 2024) (17m17s)

• China's auto industry has experienced rapid growth over the past four decades, transforming from a non-existent private car market to the largest auto market in the world (17m17s).
• Foreign automakers, including American companies, initially benefited from China's growth, but their future in the country is now threatened as Chinese firms have caught up and are pushing them out (17m52s).
• Global automakers agreed to strict trade rules and partnered with inexperienced Chinese companies, teaching them how to make cars, but Chinese firms have quickly gained ground and are now highly competitive (18m9s).
• The Chinese auto market is characterized by private ownership, few restrictions, and high competition, with new models being introduced quickly and at lower prices (18m41s).
• Chinese consumers increasingly prefer to buy Chinese brands, and CEOs of these companies have close relationships with their customers, making it unlikely for foreign firms to regain market power once they've been dethroned (18m51s).
• Despite the challenges, some argue that foreign firms, including American ones, need to double down and compete in China to prepare for the global market (19m11s).
• China's automotive industry dates back to the early 1980s, with joint ventures between Chinese and foreign manufacturers, including an American firm and a German one (19m36s).
• The industry was initially tiny, with the first vehicle, the Volkswagen Santana, dominating the market, but reforms in the 80s and 90s opened up the market and created the modern auto industry (19m51s).
• The 1994 Auto Policy allowed foreign automakers to take up to a 50% share in joint ventures with Chinese manufacturers, and later rules favored foreign firms that could produce high-quality cars from locally sourced parts (20m23s).
• General Motors, the world's largest automaker at the time, entered China in 1997 and experienced significant growth, with sales tripling in the 1990s and 2000s, and becoming the world's largest car market in 2009 (20m47s).
• At its peak, General Motors made $2 billion a year from its China operations and joint ventures, selling 4 million cars in the country in 2017, with the Buick brand being particularly successful (21m30s).
• The CEO of GM China once stated that the company was making more money in China than expected, with Chinese people loving their Buicks, but this success did not last as GM's sales in China have fallen consistently since 2017, with a 34% decrease in equity income in 2023 to $446 million (22m4s).
• The market share of international auto manufacturers in China has changed rapidly, with GM's sales falling to 2.1 million in 2023, lower than their US sales for the first time since 2009, and Ford's sales down by more than 60%, while Jeep has gone bankrupt in China (22m24s).
• The decline of the Detroit three in China is attributed to the maturity of Chinese competitors, who have improved their car quality significantly over the years, with Chinese firms learning from foreign partners through joint ventures (23m22s).
• Cross-border investments made by Chinese investors have also played a crucial role in creating globally competitive brands, such as Nanjing Automotive Group's acquisition of the British brand MG and Geely's purchase of Volvo Cars from Ford (24m23s).
• Government support has been instrumental in the growth of the Chinese auto industry, with the country investing an estimated ¥200 billion in EVs and providing direct subsidies to companies like BYD, which received over $3.6 billion between 2018 and 2022 (25m14s).
• The Chinese government's decision to focus on EVs was driven by both environmental and economic factors, including the need to combat air pollution and leapfrog Western and Japanese companies in the internal combustion engine market (25m48s).
• The government's investments in transportation infrastructure, including a nationwide high-speed railway system, airports, and highways, have also contributed to the growth of the Chinese auto industry (26m7s).
• China has outlined a new policy with eight goals for the next two years, focusing on growing car production and sales, and funding research on electric vehicles (EVs), plug-ins, hybrids, and fuel cell vehicles, which has given the country a considerable advantage in the industry (26m27s).
• Chinese firms are leading the world in battery development and production, and their technical capacity is often underestimated, with strengths extending beyond batteries and motors to software and infotainment systems (26m48s).
• The country's rise in the mobile phone and electronics industries has enabled Chinese firms to become strong in software and infotainment systems, with companies like Volkswagen seeking help from China to solve software problems (27m15s).
• Recent entrants in the industry, such as Li Auto, Xpeng, Nio, Xiaomi, Huawei, Baidu, Tencent, and Alibaba, have backgrounds in the technology industry and view cars as technology platforms for service distribution and revenue collection (27m37s).
• These companies have a fast pace of development, and their products are highly connected, appealing to China's younger buyer base, who prefer the latest technology and often view American and European cars as having inferior software (28m19s).
• The Chinese economy is not entirely controlled by the central government, with many automakers owned by provincial or municipal governments, and some being completely private, resulting in a highly competitive market (28m51s).
• The market is experiencing a price war, started by Tesla in 2023, which has accelerated the pace of vehicle development, with companies prioritizing volume over profitability and refreshing models within 12 months (29m44s).
• Chinese CEOs, like Elon Musk, engage with customers on social media platforms like Weibo and TikTok, and through car maintenance apps, creating tight feedback loops and enabling rapid development and improvement (30m22s).
• Michael Dunn attributes the decline of US and Korean automakers in China to politics, specifically the 2017 agreement between GM and South Korea to supply anti-missile defense facilities, which China opposed, marking a turning point in the market (30m37s).
• Since 2017, the sales and market share of the Detroit three and Korean automakers have significantly declined in China, with no official announcement but a clear shift in the Chinese government's stance (30m59s).
• The Chinese government has rolled back or removed rules requiring joint ventures, allowing domestic companies to grow stronger and compete independently (31m23s).
• As a result, it is likely that Ford, GM, Hyundai, Kia, and Nissan will exit the Chinese market within the next five years, while some companies like Volkswagen are trying to adapt and stay competitive (31m46s).
• Tesla is currently in a better position than its Detroit rivals, having been the first foreign automaker to set up shop in China without a joint venture, and producing over half of its global sales in the country (32m9s).
• However, even leaders like Tesla face challenges in the Chinese market, as the country has a history of inviting in world-class companies, learning from them, and eventually pushing them out (32m28s).
• Despite this, some experts like Russo, a former Chrysler executive, believe that US firms should not give up on the Chinese market and instead invest more in local design, development, and production to stay competitive (32m55s).
• Russo thinks that foreign firms can still compete in the market and achieve some success by introducing new products, possibly building them in China, and using this as a hedge against Chinese competition in the global market (33m21s).

Why EV Tariffs Won't Stop Chinese Cars (Published June 2024) (33m48s)

• China has become the world's largest auto exporter, with the capacity to supply half the world's cars, and is now setting its sights on the United States, the second-largest car market globally (34m6s).
• Despite no Chinese car brands currently being sold in the US, insiders believe it's only a matter of time before they enter the market, with some Chinese-owned brands like Volvo, Polestar, and Lotus already available (34m29s).
• Surveys indicate that many shoppers, especially younger ones, would be willing to buy a Chinese car, despite concerns over privacy, but not everyone shares the enthusiasm (34m47s).
• President Biden has imposed stiff tariffs on Chinese automakers, effectively doubling the price of a Chinese export EV, which can otherwise be as cheap as $11,500 (34m58s).
• Industry insiders believe that tariffs may not be effective in the long run and could do more harm than good, with alternatives needed for Western automakers to compete against Chinese brands (35m10s).
• China's auto industry has grown rapidly over the past 40 years, with the country now making enough cars to supply half the world, and annual demand within the country being around 25 million units (34m2s).
• China has the capacity to export 15 million cars, nearly as many as the US can sell in a good year, and sent 5 million cars to over 100 countries in 2023, making it one of the largest exporters in the world (36m19s).
• Chinese cars are now available in virtually every market except for the United States and Canada, with Chinese automakers motivated to push their products into Europe and the US (36m39s).
• A mix of favorable policies and a booming economy has contributed to China's success in the auto industry, including welcoming foreign automakers into the country and providing generous subsidies to local firms (36m58s).
• Chinese firms have also made cross-border investments, such as Geely's purchase of Volvo cars from Ford, and many companies are government-owned or receive subsidies, with EV maker BYD receiving $3.7 billion between 2018 and 2022 (37m20s).
• The objective of China's state capitalism is to build a world powerhouse auto industry, with the government offering support to local firms to help them compete globally (37m38s).
• Chinese companies have built strong products, with significant improvements in quality over the past 15 years, making it challenging for Western automakers to compete (37m56s).
• The quality of Chinese vehicles has significantly improved, making them very competitive in the market, with attention to detail in every aspect of the car, not just the driver's cockpit (38m15s).
• Chinese companies have been successful in developing new business models based on software and services, with many recent entrants having backgrounds in technology, electronics, and mobile devices (38m34s).
• The rise of Chinese cars is similar to the impact of the iPhone on Nokia products, with American consumers becoming increasingly receptive to Chinese brands, especially among younger generations (38m50s).
• A recent survey found that nearly half of respondents are familiar with Chinese vehicle brands, and 76% of those under 40 would consider buying a Chinese car, although consideration declines among older consumers (38m53s).
• The US has imposed tariffs on Chinese goods, including a 100% tariff on EVs in 2024, citing China's extensive subsidies and non-market practices as substantial risks of overcapacity (39m30s).
• China controls over 80% of certain segments of the EV battery supply chain, leaving US supply chains vulnerable and risking national security and clean energy goals (39m57s).
• The industry's response to the tariffs is mixed, with labor leaders and the Alliance for Automotive Innovation supporting the measures, while Tesla CEO Elon Musk has criticized them (40m20s).
• Musk has acknowledged that without trade barriers, most Western automakers would be demolished by Chinese competition, which can sell EVs cheaper than fuel-burning cars and is ahead in software and tech (40m31s).
• Bill Russo is skeptical of tariffs, arguing that they may have unintended consequences, such as driving up costs for American automakers and accelerating the globalization of Chinese companies (40m44s).
• The Trump-era trade war may have had the opposite effect of its intention, driving up costs for American automakers and accelerating Chinese investment beyond their borders (40m54s).
• China is making a significant effort to decarbonize its supply chain, with investments in factories around the world, including Mexico, Africa, the Middle East, and Europe (41m33s).
• Policy analysts argue that imposing a 100% duty on cars made in Mexico by Chinese companies would violate the terms of the US-Mexico agreement and cause further friction with the country (41m46s).
• Executives like Russo argue that American firms need to face the reality of Chinese competition and focus on creating competitive and attractive products that meet consumer demands (42m5s).
• Americans have been enjoying the benefits of affordable Chinese products for decades, and shutting off this access would only make products more expensive (42m23s).
• China's approach to foreign companies 30 years ago required them to manufacture in China, form joint ventures with Chinese companies, and export from China in order to sell in the Chinese market (42m37s).
• The US could adopt a similar approach, allowing Chinese companies to enter the US market while requiring them to manufacture in the US, form joint ventures with American companies, and export from the US (43m5s).
• The current lack of policies to guide the process of allowing Chinese companies to enter the US market could weaken the US industry if not addressed (43m34s).
• Despite the absence of Chinese-branded cars in the US, over 100 Chinese-owned automotive companies already have a presence in the US, with concentrations in Detroit and Silicon Valley, and suppliers scattered across 30 US states (43m44s).
• These Chinese companies are preparing for the right time to enter the US market and sell their cars to Americans (44m10s).