By Nick Carey and Ben Klayman
LONDON (Reuters) – U.S. and European politicians have sounded the alarm that their domestic car industries could be devastated by a wave of cheap Chinese electric vehicles. But so far, China’s largest electric vehicle maker BYD has dramatically increased export prices compared to domestic prices rather than undercutting foreign rivals.
The goal: to achieve huge profit margins that the car manufacturer in China cannot achieve given the tough competition.
BYD charges more than double – sometimes nearly triple – the price it gets for three key models in China in some overseas showrooms, according to a Reuters review of the automaker’s pricing in five of its biggest export markets.
Take the BYD Atto 3, a compact electric crossover. In China, the mid-range version costs $19,283. In Germany, the small SUV costs $42,789 – a price that is still competitive with comparable electric vehicles in this market.
BYD did not respond to a request for comment. The company’s chief executive, Wang Chuangfu, told investors in a private meeting in March that BYD expects exports to help boost profitability this year as a domestic price war weighs on the company’s margins.
It is common for automakers to charge slightly different prices to export the same or similar versions of a vehicle. But the sheer size of BYD’s markups for foreign markets is rare, said Sam Fiorani, vice president of global forecasting at market research firm AutoForecast Solutions.
“Vehicles marketed globally are typically within a narrow price range,” Fiorani said.
The difference partly reflects cut-throat competition in China, the world’s largest auto market, where dozens of electric vehicle brands are engaged in a price war. BYD’s entry-level Seagull electric hatchback sells for less than $10,000 at home.
BYD’s high export markups also highlight the huge cost advantages that China’s electric vehicle industry has over foreign competitors. China’s electric vehicle leader has cut costs at all stages of production, from raw materials to batteries to land and labor, according to Chinese auto industry experts and data on battery costs provided to Reuters. In addition, Beijing has heavily subsidized both domestic and foreign brands selling electric vehicles in China, where electric and plug-in hybrid vehicles accounted for more than a third of all new car sales last year.
This cost advantage unsettles foreign competitors. Some US and European automakers are calling for higher tariffs on Chinese electric vehicles. BYD and other Chinese electric vehicle makers are already expanding in Europe but are not yet selling in the United States, where they face higher tariffs and stronger political opposition.
China’s dominance in the global electric vehicle industry is on display this week at the Beijing International Automotive Exhibition, where BYD unveiled two luxury models as part of a strategy to capture the premium market. Automakers are expected to launch 110 new electric and plug-in hybrid models in China this year, most of them from Chinese brands.
Rising export prices give BYD scope to make much larger profits per vehicle, electric vehicle manufacturing cost experts told Reuters. But these margins also give the car manufacturer enormous flexibility to reduce prices if necessary in order to gain market share abroad.
For now, Chinese automakers led by BYD are content to keep export prices high and make profits, said Ben Townsend, head of automotive at U.K.-based Thatcham Research, an industry-backed firm that deals with automakers, among others Some security issues work from China. He said Chinese electric vehicle makers often struggle to break even or make a small profit in their home market.
“You don’t want to undercut the European market,” he said. “They want to make a profit.”
BYD and other electric vehicle makers are also trying to shed the stigma of cheap Chinese products by building a global reputation and focusing on maintaining high resale values, said Bo Yu, Greater China country manager at British research firm JATO Dynamics.
“Chinese automakers are in a brand development phase,” she said.
HUGE MARKUPS
Reuters reviewed prices published by BYD or its dealers in five of its leading export markets – Germany, Brazil, Israel, Australia and Thailand – which typically featured three of its most popular electric vehicles, the Dolphin and Seal sedans and the Atto 3 SUV. In one case, Israel, the seal was not offered.
In these markets, the starting price for the BYD Atto 3 was between 81% and 174% higher than in China. Dolphin prices were between 39% and 178% higher, and seal prices were between 30% and 136% higher.
Comparing starting prices depending on the market is complicated by regional differences in the available equipment variants. Some of the entry-level export vehicles examined by Reuters had slightly better equipment than the cheapest model in China.
In cases where apples-to-apples comparisons were possible across different trim levels, BYD’s export prices were still typically much higher than in China. For example, the closest version of the Dolphin on sale in Germany with the same battery range sells for $37,439 – more than double the price of $16,524 in China. The updated Seal version sells for $48,139 in Germany, 59% more than the China price of $30,317.
By comparison, the Reuters analysis found that Tesla, which has a higher cost base than its Chinese rivals, is selling its Chinese-made Model 3 just 37% more in Germany than in China, according to Tesla’s website.
Car manufacturers can expect high costs when exporting cars. But BYD’s high export premiums are more than enough to cover them and generate thousands of dollars in additional profit per vehicle, according to an analysis conducted for Reuters by A2MAC1, which dismantles cars for automakers to evaluate their rivals’ products.
A2MAC1, based near Paris, examined the European version of the BYD Dolphin, which sells for about $35,000, and a China version that sells for about $15,000.
The European Dolphin is slightly longer and has additional features, including a slightly larger battery, more comfortable suspension and additional sensors. However, taking these upgrades as well as shipping and import taxes into account, A2MAC1 estimated that BYD’s profit margin on the European car was about $7,400 higher than anything the company makes in China for the same car.
‘NEGOTIATION STRENGTH’
BYD has emerged as the dominant player in China’s electric vehicle market. The company is now investing heavily and increasing sales in markets worldwide.
Its exports of 240,000 cars in 2023 accounted for 8% of global sales of 3 million. But the automaker is rapidly adding new models and new markets and says exports are expected to rise to 400,000 cars this year.
The Reuters investigation into the prices of Chinese electric car models in Europe found that Chinese automakers often price their vehicles just slightly below or above the prices of legacy European rivals, but pack them with interior trim and tech features that European automakers charge extra for . The top version of the BYD Atto 3 sells for $42,789 in Germany, just below the electric Opel Mokka’s base model of $43,652 but above the starting price of $41,298 for a Peugeot E-2008.
Sometimes BYD shoots higher than the competition. An improved version of the Seal sells in Europe for 10% more than the roughly comparable Tesla Model 3. In China, the Seal is 6% cheaper than the Tesla.
BYD has an advantage over legacy car manufacturers with its vertically integrated supply chain. The company manufactures almost all of the components of its cars itself instead of outsourcing them to suppliers.
Reducing the cost of batteries – the most expensive component of an electric vehicle – was critical. BYD and other Chinese automakers and suppliers have spent the last two decades securing access to mines around the world to lock up critical battery minerals such as lithium and cobalt, said Keith Norman, chief sustainability officer at battery startup Lyten the Silicon Valley. “They own the critical mineral part,” Norman said.
Data provided to Reuters by market research firm Benchmark Mineral Intelligence shows the price of batteries in China will be around 18% lower than in Europe this year.
A giant company like BYD that makes its own batteries can still cut costs by negotiating volume discounts across the battery supply chain, said Benchmark analyst Roman Aubry.
Chinese automakers benefit from affordable land – often subsidized by local governments – and benefit from cheaper electricity and labor. They can also build plants in China in as little as a year because they face fewer regulatory hurdles than in Western countries, according to Mark Wakefield, head of the global automotive practice at AlixPartners, a New York-based consulting firm.
That means Chinese automakers’ capital investment per vehicle is far less, “and you make more money,” he said.
(Reporting by Nick Carey in London, Zhang Yan in Shanghai and Ben Klayman in Detroit; additional reporting by Christina Amann in Berlin; Editing by Marla Dickerson and Brian Thevenot)