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Will BYD lead the way in realizing Chinese automakers’ American dream?

Seven years ago, backed by Warren Buffett’s Berkshire Hathaway, BYD made its first appearance at the Detroit Auto Show. In 2014, it once again set up its own display at the Detroit Auto Show to make a big push to try and establish itself in the U.S. Though it had announced its intention to sell EVs there in the next year or so, the battery electric car maker has repeatedly delayed its entry of passenger vehicles into America.

Fast forward to 2017 and a great deal has changed since then. BYD looks like it will be a serious contender. Li Yunfei, vice president of BYD Co., Ltd., said during a Beijing event that it wants to enter the U.S. in “roughly 2-3 years” and it won’t compete on price anymore but rather on quality and innovation.

 

BYD: Build your dreams

BYD’s motto is Build Your Dreams. Twenty-one years ago, founder Wang Chuanfu got the company started by making batteries for cellphones. Nowadays the Hong Kong-listed firm employs 180,000 people all over the world. Bill Gates and Warren Buffett are their key investors. Samsung invested $449 million into BYD last July, joining Buffet and Gates as high profile global shareholders. And in 2016, BYD’s new energy vehicle sales reached 101,183 units globally, while second-place Tesla sold 76,243 units. The Qin and Tang plug-in hybrids almost accounted for all of those sales. The Tang, with more power than a Chevy Corvette, is the world’s third-best seller in the EV segment.

Last year BYD named Leonardo DiCaprio its global brand ambassador. In the picture posted by Dicaprio on his official Sina Weibo account, Dicaprio and Wang stood next to a BYD e6 electric car. A few years ago, the e6 was already certified by the U.S. EPA. The e6 is priced just over $48,000 and is widely used as a taxi in Chinese cities. Hundreds of e6 models can be found on the streets of London and Singapore too. The new and improved e6 is equipped with a large 80-kWh lithium-iron phosphate battery and has a range of 400 km as well as an EPA-rated range of 187 miles per full charge. This model is very popular among taxi fleets. Zooming the streets since 2010, the e6 experienced a record year in 2016 and it ended last year with a registration of 2,528 units in December.

With its American corporate office near downtown Los Angeles, BYD actually does have a modest presence in the U.S. already, currently focusing on electric buses and a specialized fleet vehicle. BYD has been producing all-electric, long-range electric buses in Lancaster, California since 2013. A single full-size BYD electric bus runs in the decisively un-cheap range of $500,000. The Lancaster plant employs more than 400 people and plans to triple capacity.

 

American dream, Chinese wheels

Chinese automakers have long aspired to build vehicles for the U.S. market. Chery was one of the first dreaming of penetrating the U.S. market. In 2005, Chery made the startling announcement that it had teamed up with Malcolm Bricklin’s Visionary Vehicles and would begin importing and selling 150,000 mainland-made sedans, SUVs and sports coupes in the U.S. in 2007. Bricklin was an original distributor of Subaru and Yugo in the U.S., but both projects ended up in fiasco. The only people to find any success in that venture were the lawyers. As everyone knows, Chery’s attempts to export to the U.S. ended in failure. Geely was the next to dream the American dream. Its first appearance at the Detroit Auto Show in 2006 created quite a stir due to its previously announced plans to enter the U.S. market. It stole spotlight when it showcased its “Freedom Cruiser” along with other models it planned to export to the U.S. beginning in 2008. Geely said its goal was to land a basic model in dealer showrooms for $7,500. Like Chery, Geely’s initial effort to export its cars to the U.S. ended in failure and it has never stepped into American auto retailing space.

Since then Chinese automakers haven’t stirred any news, however many including Geely, BYD and Wanxiang have all made investments in establishing or partnering with U.S. entities with the goal of opening China’s formidable manufacturing resources to America. Geely purchased Volvo in 2010 and has been expanding globally during the past few years, including setting up shop in several countries in Eastern Europe and Latin America.

Wanxiang has been the biggest spender from China in the U.S. EV assets: the company picked up the bankrupt pieces of battery maker A123 Systems and Fisker Automotive.

BYD has already dominated Chinese home markets and can apply its learning to overseas markets. More electric cars are sold in China than in the rest of the world combined, sales of battery electric and plug-in hybrids increased significantly in China in 2016, to 507,000 vehicles. Chinese EV market is propped up by huge government subsidies as part of Beijing’s policy to build global leadership in cleaner energy driving. The U.S. EV market has taken three years to grow to just under 100,000 vehicles, but according to Navigant Research’s Electric Vehicle Market Forecast report, over the next three years it will more than double. BYD has already learnt about EV production at home once a domestic market begins to mature in China, it is hoping for a much larger presence once it enters the passenger car segment in the U.S. Although until now the Chinese auto industry hasn’t managed to go well beyond its borders, things could change – as the companies establish international brands. 

 

What are the odds for success?

While Chinese automakers have been gaining on foreign rivals in domestic market in terms of design and quality, in particularly for the SUV segment, no Chinese automakers has really taken root in the U.S. and European markets, where they are short of brand recognition and a global reputation for quality. Although Chinese automakers are closing the perceived quality gap with mass-market foreign nameplates, companies like Great Wall, Geely and Roewe are vastly improving interior and overall fit and finish, however brands don’t usually leap. This is why so many of the new companies have adopted clearly un-Chinese names: NextEV, Lucid, LYNK & CO and Faraday Future.

Other Asian automakers such as Toyota, Honda and Nissan had to work decades to overcome initial perceptions of chancy quality. Hyundai struggled with chronic reliability issues. The Korean brand got real traction in the U.S. market only after it offered an unprecedented 10-year, 100,000-mile warranty in the early 2000s.

But it seems like BYD has no patience for the low-price, incremental growth strategy that worked for the Japanese and Koreans. BYD will have to overcome a great deal of skepticism in the U.S. market because of the stumbles made by Chinese automakers that preceded them.

Though BYD has been vastly improving its interior and overall fit and finish and its technology is up-to-date, too, but whether the U.S. will accept BYD – is uncertain. New President Donald Trump has made a habit of issuing twitter warnings declaring his intent to block the import of cars from Mexico. He has lately also taken aim at Canadian and German imports, as well. And he has, more broadly, raised questions about trade with China.

Will BYD be a game-changer and have the opportunity once and for all to change the perception of quality for “Made in China?” Will American car buyers embrace the BYDs manufactured in China? Some market experts and watchers as well as BYD remain cautious because of the problems Chinese brands have experimented outside the border and because America is considered the most competitive market in the world.

But one shall never forget the company’s motto is to “Build Your Dreams,” and this time it would very much be an American dream.  

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