BYD and Chinese EVs’ European victory may be delayed

Europe believes that the imminent attack on China’s electric vehicles in general and BYD’s auto industry in particular is a foregone negative conclusion.

After all, aren’t Chinese electric cars much cheaper than European ones, comparable if not better in quality, and a 30% price advantage? While all of this is true, there are some important downsides that could undermine the expected China removal, at least in the short term.

China’s EV threat to Europe has been helped by the EU’s aggressive plans to phase out internal combustion engines. The EU failed to recognize that European manufacturers’ EV plans are about five years behind China’s EV plans. If the transition to EVs proceeds according to this schedule, European industry will face an existential crisis. To keep its industry afloat, the EU will need to weaken regulations, causing EV market share to soar to 80% by 2030 and 100% by 2035. According to Schmidt Automotive Research, sales in Western Europe will reach just under two units. Last year’s market share was 1 million units at 16.9%, and in 2024 it is expected to increase slightly to 2.1 million units (17.2%).

In the short term, there are negative factors for China, including the dangers of Suez Canal shipping, lack of transport capacity, weak demand for EVs in Europe, potential EU tariff barriers, and reduced long-range performance of Chinese sedans and SUVs. Some are imminent. Weak demand in China’s troubled economy could make BYD and others more determined to boost profits in Europe.

The trouble disrupted traffic in the Suez Canal, forcing ships from China to make long and expensive passages around South Africa. There is currently no sign that the Iranian-backed Houthis, based in Yemen, will stop attacking shipping. This has further exacerbated the transportation problem for Chinese exporters due to the lack of vehicle carriers.

BYD has added 7,000 new transporters currently on its way to Europe, according to Matt Schmidt of Schmidt Automotive Research.

Meanwhile, Chinese manufacturers such as Great Wall Motor’s ORA brand and SAIC Motor’s MG have been hit by a sharp slowdown in EV demand in Europe, increasing the cost of storing unsold vehicles. Schmidt said this has forced him to offer deep discounts.

Although Chinese EVs are superior in many ways, they still fall short of European, Korean, and Tesla-made EVs on the continent’s highways. The speed limit on these highways is 130 km/h, or 82 mph, and exceeding 60 mph significantly reduces the range of an EV. In Germany, many motorway miles are still unrestricted.

I just drove BYD’s newest import, the Tesla Model 3 Challenger Seal, which costs nearly $63,000 after tax. Powered by an 82.5kWh “Blade” battery, BYD claims a range of 523 miles. Performance is noticeably worse on the highway. According to data from WintonsWorld, high-speed cruise mode reduces range by at least 66%. This means that on a 160-mile trip, the Seal will only be able to travel 34 miles, giving it an effective highway range of just 110 miles. This kind of performance won’t help buyers who regularly take long business trips or make several summer sorties to Italy or Spain.

Other Chinese EVs have produced similar results. BYD Atto3 has a 61.1% penalty with 101.1 miles valid, SAIC’s MG ZS has 72.6kWh and 54.7%/120 miles, Geely Polestar 2 has 78kWh and has 59%/110 miles, Great Wall Motors’ ORA Funky Cat was 48kWh and 31%/133 miles. Most European and Korean EVs have a slightly better highway range of 130-160 miles. The Tesla Model 3’s mileage was far higher at 239 miles, but considering that a sedan or SUV with a cheap diesel engine could easily double his mileage, this… Not that impressive.

Another concern for Chinese automakers is the possibility of punitive tariffs following an EU investigation into accusations that the Chinese government authorized excessive subsidies.

In addition to the cheaper Atto3 and the bottom-end Dolphin, BYD is introducing the Seal U, an SUV directly targeted at the Tesla Model Y. BYD announced last year that it would build a transplanted plant in Hungary, with plans to produce around 200,000 vehicles a year by 2027 at the latest. Analysts say Tesla will soon be selling about 300,000 cars a year in Europe. BYD overtook Tesla in the fourth quarter of last year to become the world’s largest EV maker.

In 2023, SAIC’s MG will lead the way in Western Europe with approximately 107,340 vehicles sold, followed by Polestar (35,856), BYD with 15,951 (mainly Atto3), and GWM ORA. 6,236 units, followed by NIO, Xpengs, Aiways, DFSK, and Leap Motors. To Mr. Schmidt.

Benjamin Kibbies, senior automotive analyst at Dataforce, agrees that range is important because EVs like the Seal are often used as high-mileage company cars for customer visits.

“The extra time for additional charging stops can be quite costly,” Kibies says.

BYD will be a formidable competitor in Europe, but competition will only intensify as more players enter.

“BYD has very ambitious plans for Europe and has the financial and technological strength to succeed. They have the largest model range of any new entrant to the market. and may become more aggressive with pricing if necessary,” Kibies said in an email exchange.

“That said, building new BEV brands in 2024 is certainly not possible as the market does not grow as expected and brands expanding their model ranges compete for the same limited number of customers. Difficult. However, while BYD is considered an EV-only brand in Europe, it also has a range of ICE and hybrid models in China, and if BEVs don’t gain enough traction, it could always use one of those. You can choose to import parts,” Kibies said.

Kibies does not expect the EU to impose higher tariffs on imports from China. This is because, among other things, it would raise prices and jeopardize the EU’s ambitious plans for EV sales.

Investment bank UBS said BYD and China’s presence in Europe may not increase output much in the short term, but could impact pricing and profit margins for domestic companies such as VW, Renault, Stellantis and Volvo. I expect it to have a big impact.

“Clearly, EU manufacturers must meet CO2 compliance in 2025. For some companies, compliance will require a significant increase in EV sales in 2025, and in our view This is likely to be a significant drag on profitability,” UBS said in the report.

BYD may be less aggressive on pricing, at least in the short term and until the Hungarian factory is up and running, to avoid scaring off locals. However, mass-market manufacturers will likely feel the burden in the long term.

“BYD will continue to build its brand recognition and market position in Europe through imports. Given the geopolitical risks, it is unlikely that BYD will take an aggressive pricing strategy in Europe. There may be relatively less focus on the premium market,” Bernstein Research said in a recent report.

“This poses long-term risks for European mass-market manufacturers Volkswagen, Stellantis and Renault,” Bernstein Research said.

Bernstein’s base-case scenario predicts Chinese automakers will account for 3% of the European market, or 550,000 units, by 2030, with a worst-case scenario of 10%.

Major European manufacturers need to weaken anti-ICE rules. This would allow them to sell large numbers of highly profitable conventional vehicles and generate funds for the switch to EVs. Europe is in the throes of great unrest as farmers in France, Germany, Italy and Spain protest against the EU’s net-zero CO2 policy and seek concessions. This is no surprise for the auto industry ahead of the European Parliament elections scheduled for early June.

BYD Seal Excellence AWD

Electric motor – 523 horsepower

Gearbox – 1 speed automatic

Battery – 82.5 kWh BYD Blade (LFP)

Claimed range – 323 miles

Battery Capacity – 323 miles (average after 4 identical charges)

Highway range estimate – 110 miles

Highway driving penalty – 66%

Drive – all wheels

Acceleration – 0-60 mph 3.6 seconds

Top speed – 112 mph

Price – £48,695 ($61,400) after tax