BYD: U.S. climate laws could price Americans out of EVs

It’s bigger than cars. As BYD comes to the fore globally, it helps to tighten China’s grip on products that are crucial to the energy transition as the fraught dynamics of economic statecraft ramp up political tensions. On top of EVs, China also is a key producer of solar panels, wind turbines and electrolyzers, machines that would be crucial to a hydrogen economy.

“China’s been playing a long game as it relates to the electrification,” said Bill Russo, founder and chief executive officer of Shanghai-based advisory firm Automobility Limited. “This is a geopolitical battle — it has been going on long before it ever landed into the automotive industry. The geopolitical battle for energy security is what causes nations to go to war.”

BYD’s rise largely is attributed to the affordability of its cars. When counting both EVs and plug-in hybrid models, BYD already is No. 1 globally.

BYD’s sales, including EVs and plug-ins, are expected to reach about 2.7 million units this year — representing growth of more than 10-fold from where it was at the start of the pandemic, according to an estimate from Morningstar. Elon Musk’s Tesla will likely sell 1.8 million EVs, the firm predicts.

Now, analysts including from Morningstar and BlombergNEF say BYD is on course to eventually overtake Tesla when it comes to sales for pure EVs (not including the plug-in hybrids). Most experts see the switch happening by the second half of this decade. It’s a distinction that matters because it represents the future of the industry.

As BYD grows, Li expects Latin America will be one of the company’s biggest areas of expansion.

“BYD wants to move the EV adoption rate in Latin America to 10 percent to 20 percent in the next three to five years, from less than 2 percent now,” Li said. Eventually, Latin America’s EV adoption rates could outstrip the U.S. because of the IRA’s fallout, she said.

“You don’t need to go to every market — you only go to the market you feel is ready,” she said.

Li isn’t alone in pointing out the issues.

Michael Robinet, executive director, consulting, at S&P Global Mobility, said the IRA is unlikely to help EV adoption rates because it doesn’t change “the relative cost of the EV,” one of the biggest factors that leads Americans to choose gasoline-powered cars instead.

S&P Global Mobility projects the share of pure EVs hitting the road in North America will climb, with the cars representing about 18 percent of new-vehicle production by 2025, from 3.1 percent in 2020. But the firm also expects North America will keep falling further behind Greater China, where the share will surge to 36 percent, from 4.4 percent in 2020. The consultancy projects North America will also continue to trail Europe.

Lagging US adoption rates partly are a function of EVs largely being concentrated in luxury segments for American consumers, said Seth Goldstein, an equity strategist at Morningstar.

Of course, it’s in BYD’s interest to talk down the IRA given the legislation is meant to foster the company’s US competitors.

Others see the climate law’s cash injections as a pull to set up shop in the US to tap the funds. German carmaker Volkswagen Group opted in March to build a $2 billion factory in South Carolina for its new electric Scout brand, describing the incentives on offer as akin to “a gold rush.”And BYD competitor Contemporary Amperex Technology Co. is taking a different approach. CATL, as the world’s largest battery maker is known, has partnered with Ford Motor Co. on a $3.5 billion EV battery plant in southwest Michigan that’s stoked controversy over its novel ownership arrangement. Ford will own and operate the plant, while CATL will license its technology without taking an equity stake — a deal that’s been dubbed by Virginia Governor Glenn Youngkin as a “Trojan horse” for the Chinese Communist Party.