Intense Days in China's Automotive Market: An Evaluation of BYD

The market with the most intense competition in the world is undoubtedly China. Within this market, local manufacturers face fierce and ruthless rivalry. However, despite all this competition, profitability remains elusive.

In recent weeks, a significant and very public conflict erupted between two major Chinese automakers: Great Wall and BYD. The CEO of Great Wall likened BYD to the infamous real estate giant Evergrande, which collapsed in 2021. In response, BYD issued a very harsh statement without directly naming its rival.

More concerning, however, are the recent leaks reported by Reuters. Production in BYD’s Chinese factories has reportedly been cut by one shift due to an excess of unsold vehicles. Construction on several new production facilities has also been halted. It is also well known that BYD’s planned investment in Türkiye has seen no progress for months.

RISKS

1. A Financial Time Bomb

BYD pays its suppliers using electronic promissory notes with maturities of 9 to 12 months through a platform called Dilian. This creates a burden of nearly €40 billion that does not appear as debt on the company’s balance sheet. For this reason, some analysts have labeled BYD “the Evergrande of the automotive industry.”

2. Loss of Trust and Social Crisis

Legendary investor Warren Buffett’s reduction of his BYD stake from 20% to below 5% has been seen as a strong signal of lost confidence. Furthermore, a lawsuit in Brazil on charges of human trafficking has shed light on the darker side of the brand’s “low-cost production” strategy, revealing serious reputational risks.

STRENGTHS

1. Unmatched Vertical Integration

What makes BYD so strong? The company manufactures around 75% of its vehicles in-house—from the battery (the famous Blade Battery) to the chip and the engine. This dramatically lowers production costs and provides strong resilience against global supply chain disruptions.

2. Technology and Government Support

BYD’s Blade Battery technology, based on LFP chemistry, is both safer (lower risk of combustion) and cheaper than alternatives. The company is also seen as a strategic national champion by the Chinese government. As such, it is expected that Beijing will intervene to support the company should it face a financial crisis.

CONCLUSION

BYD has grown very rapidly with successful technology and an unmatched cost structure. However, managing rapid growth is always challenging. To achieve global success, the company must localize more effectively. Following a model similar to Volvo/Geely could significantly increase its chances of success. Without this shift, BYD may repeat the same mistakes previously made by Japanese and Korean manufacturers. Cultural transformation within the company is difficult, but it is necessary. One cannot manage a European team the same way as a Chinese one; adapting to local cultures will be essential for true globalization.