Chinese electric car maker BYD reports 632% jump in profits … “Taking Tesla to the Wood Shed”


Electric car maker BYD is speeding ahead of Tesla with respect to profitability.

The Chinese company today (April 28) reported a 632% jump in profits in the first quarter from a year ago. Days earlier, the US car company led by Elon Musk announced one of its worst quarters ever.

BYD is the world’s largest electric vehicle maker (membership), though its brand isn’t widely recognized outside of China. It started out as a battery maker about 25 years ago and transitioned into the car business a little more than a decade ago, making both conventional fossil fuel-powered cars and “new energy vehicles.”

The success of its first mass-produced hybrid caught the attention of legendary US investor Warren Buffett, who in 2008 bought a 10% stake in BYD for $230 million. That investment seems to be really paying off right now.

There is increased demand for electric vehicles in China, BYD says, and it expects continued growth. The company’s profits rose to about 750 million yuan ($111 million) in the first quarter, compared to 102 million yuan a year ago. BYD sold 73,172 new energy vehicles (pdf) in the quarter, up 147% from the same period a year ago.  

Including conventional fuel cars, it sold 73,172 vehicles in the quarter, up 5% from last year. The company is now selling more electric vehiclesthan conventional cars.

“New energy vehicles are expected to continue to sell well in the second quarter, and new energy vehicle sales and revenues continue to maintain strong growth,” the company’s latest stock exchange filing reports.

According to Reuters, BYD expects to sell 655,000 cars in 2019, and will account for a substantial portion of the 1.6 million electric vehicle total that China’s Association of Automobile Manufacturers predicts will be sold this year.

In stark contrast to this positive news for BYD, its US rival Tesla lost nearly $700 million in the first quarter. It attributed over $120 million in losses to a higher return rate than expected after it raised prices for the Model S and Model X.

In its quarterly earnings call, Tesla chief financial officer Zachary Kirkhorn described the first quarter as “one of the most complicated… in the history of the company.”

Beyond its faltering quarterly profits, Tesla also had some bad news in China to contend with recently.

Last week, a video that circulated widely on Chinese social media showed a parked Tesla Model S abruptly caching fire in Shanghai, where the company plans to build its first overseas factory. Earlier in the month, a parked Tesla in the US also caught fire.

The two electric vehicle makers do have something in common, however. Tesla and BYD both plan to expand into each other’s markets. China is the world’s largest car market, and the US comes second.

Read More: BYD Sold Over 28,000 EVs In January — Will China See Over 50% Sales Growth Again This Year? — #CleanTechnica Report

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EV Batteries: A $240 Billion Industry In the Making that China is Taking the Lead


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Even those who consider themselves somewhat knowledgeable about the electric vehicle (EV) industry would be hard pressed to name more than a handful of EV battery suppliers.

Most would quickly name Japan’s Panasonic and South Korea’s Samsung and LG Chem, as well as reference the Gigafactoy that Panasonic and Tesla opened this past January in Nevada. A few of the more knowledgeable would also name BYD, a leading electric vehicle manufacturer in China that is also one of the world’s largest battery suppliers.

Other than those names, however, and perhaps one or two other lesser known players, the list would end there.

 

Nearly everyone would be surprised to learn that there are now more than 140 EV battery manufacturers in China, busily building capacity in order to claim a share of what will become a $240 billion global industry within the next 20 years. As in all things auto, EVs and the batteries that will power them promise to be big industries in China.

A $240 billion industry

The math is simple. Respected auto analysts like those at Bernstein, a Wall Street research and securities firm, are predicting that EVs will account for as much as 40% of global vehicle purchases in 20 years. Since almost 100 million vehicles are produced and sold globally, that means that the annual market for EVs will be 40 million, even if the total global vehicle build does not increase between now and then.

Assuming that battery prices reach parity with the $6,000 cost of an internal combustion engine, a $240 billion battery industry is now in the making. Due to its well-publicized problems combatting air pollution, China will lead the way in EVs, as well as in batteries.

Read more: Why China Is Leading The World’s Boom In Electric Vehicles

In order to meet projected demand, battery cell manufacturing capacity globally will need to increase dramatically, which is why China’s battery makers are aggressively expanding. When Tesla and Panasonic announced in 2014 their plans to build a “Gigafactory” capable of producing 35 Gigawatt hours (GWh) of battery cells every year, that was big news. (A GWh is equal to one million kilowatt hours.) After all, the entire battery capacity in the world at the time was less than 50 GWh.

A great deal has changed over the last three years, though. Led by China, battery cell manufacturing capacity has more than doubled to 125 GWh, and is projected to double again to over 250 GWh by 2020. Even that will not be nearly enough. Total cell production capacity will need to increase tenfold from 2020 to 2037, the equivalent of adding 60 new Gigafactories, during that period.

 

Shifting towards China

Battery technology originated in Japan; was then further developed by companies in Korea; and is now shifting strongly toward China. China’s cell production already has a larger share of global production than Japan’s, and China’s global market share is projected to rise to more than 70% by 2020.

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This photo taken on May 22, 2017 shows a car passing new electric vehicles parked in a parking lot under a viaduct in Wuhan, central China’s Hubei province. (STR/AFP/Getty Images)

Rapid market growth for EVs in China, as well as the tendency for Chinese auto assemblers to use homegrown products, augurs well for China’s continued leadership in battery cell manufacturing. According to Roland Berger’s E-mobility Index Q2 2017 report, locally made lithium-ion cells are used in more than 90% of the EVs produced by Chinese manufacturers.

Read more: The Electric Car Market Has A ‘Chicken Or Egg’ Problem — And China Is Solving It

With so many Chinese companies hoping to enter the battery sweepstakes, China’s government is considering policies that will set minimum production capacities for battery manufacturers as a way to further strengthen its position as a global leader. Although not yet official, Beijing would like Chinese manufacturers to have a production volume of at least 3 to 5 GWh per year. Separately, Beijing released draft guidelines at the end of 2016 stipulating that battery manufacturers would need to have at least 8 GWh of production capacity in order to qualify for subsidies. As a signal to the market, the government is planning to back the development of only those battery companies with annual production capacities of 40 GWh or more.img_0160

Who the government is championing

While Panasonic is the world’s largest supplier of electric vehicle batteries globally, Chinese companies are catching up.

Based in Shenzhen, BYD — which stands for “Build Your Dream” — is a Hong Kong listed, Chinese car company that in 2016 produced almost 500,000 cars and buses, approximately 100,000 of which were EVs or plug-in hybrids. Consistent with BYD’s strategy of vertical integration, it also has 20 GWh of battery cell capacity and is China’s largest battery maker.

In 2008, a subsidiary of Warren Buffet’s Berkshire Hathaway invested $230 million in BYD, which at the time represented a 10% stake in the company. BYD is now valued in the marketplace at $16.9 billion.

Read more: China And The U.S. Supercharge The Growing Global Electric Vehicle Industry

CATL is another leading Chinese battery company. Founded in 2011 and headquartered in Ningde, Fujian province, CATL focuses on the production of lithium-ion batteries and the development of energy storage systems. With manufacturing bases in Qinghai, Jiangsu, and Guangdong provinces, CATL has 7.7 GWh of battery capacity and plans to have battery production capacity of 50 GWh by 2020. Like BYD, CATL is the type of company that the Chinese government wants to support and promote as a national champion.

Companies to watch

Other companies to watch are Tianjin based Lishen Battery and Hangzhou’s Wanxiang Group.

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State Grid Corp. of China (SGCC) battery packs sit on display in the showroom of Wanxiang Group Corp. in Hangzhou, China in September 2016. (Photographer: Qilai Shen/Bloomberg)

Lishen has production bases in Bejing, Qingdao, Suzhou, Wuhan, Ningbo, Shenzhen and Mianyang, and plans to have 20 GWh of battery cell capacity by 2020. And Wanxiang is one of China’s largest private companies and one of the country’s leading automotive components suppliers. In 1994, Wanxiang established a U.S. company in Elgin, Illinois. Since then, Wanxiang has made over two dozen acquisitions in the United States, including A123, a battery maker that had gone into bankruptcy, in 2013, and Fisker Automotive in 2014.

The flip side to the coming Electric Revolution, of course, is that for every battery pack that is put into a vehicle, one less internal combustion engine is needed. While the growth of EVs will give rise to a large global battery industry, it will also make obsolete the substantial investments that have been made in global engine and engine component capacity.

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