Auto Industry

Sparking into life

Having struggled in recent years, BYD finally finds its stride

BYD tang

Hot seller: BYD’s first plug-in SUV, the Tang

James Bond has enjoyed many a lucky escape from exploding cars during his career, most recently in Skyfall when his beloved Aston Martin DB5 blew up in a hail of bullets.

But car safety experts say that real life may not be quite as accommodating for the drivers who think they are getting a bargain by purchasing cars damaged by the chemical explosions at Tianjin Port last August.

Local media estimates suggest about 20,000 imported cars were in the vicinity of the blast at the port, which handles roughly 40% of the cars shipped to China. Jaguar Land Rover is thought to have been the worst hit. It lost 5,800 vehicles and swung to a third quarter loss as a result of the subsequent write-offs. Hyundai and Kia were not far behind, with about 4,000 cars damaged between them, and Chrysler, Volkswagen and Renault all reported heavy losses too.

The worst damaged vehicles were destroyed by the Tianjin municipal government. The rest became the property of the insurance companies, which sold them off for scrap. However, as China Daily and Beijing News now report, some of those same vehicles have been filtering back into the market.

China Daily estimates that about 2,000 to 3,000 such cars may have found their way to auction houses. During January alone, the newspaper counted 500 as sold this way. Most seem to be Chrysler Grand Cherokees and Jeep Wranglers, sold at hugely discounted prices.

Chrysler has tried to combat the problem by posting the serial numbers of the damaged vehicles on its website. And safety experts have warned that – while the cars may look fine – their reliability may have been compromised by the Tianjin disaster.

“There’s a risk of spontaneous explosion or a breakdown in the car’s computer system,” one insurance officer told Beijing News.

The media has also been reporting on fraudulent practices in other parts of the industry, taking some of the shine from figures suggesting that China became the world’s largest market for new energy vehicles (NEV) last year.

The NEV tag is a broad one, covering partially electric vehicles (hybrids) to pure battery electric cars. But the media has reported that about 108,000 NEVs were registered for plates in the first 10 months of 2015. The problem: that was only 63% of units supposedly sold in that period.

What explains the gap between the sales numbers and the licence plate figures? It seems particularly strange that more of the new owners of NEVs wouldn’t licence their vehicles, because electric cars aren’t generally subject to the same quota restrictions as gasoline-powered cars in most Chinese cities, and their owners usually pay lower licence fees.

Officials have concluded that the discrepancy could be due to fraud. Factories have been reselling the same car to their own car rental companies over and over again to pick up the government’s subsidies.

The Economic Observer picked up on the same issue earlier this year after sales of new energy commercial vehicles were reported at 63,525 units for last December – i.e. around double the figure the year before. The suspicion (again) was that producers had been setting up car rental agencies to buy the vehicles and receive millions of yuan in subsidies.

The problem is thought to be particularly acute for smaller electric buses (where subsidies can total Rmb600,000 – half for the manufacturer and half for the purchaser).

Sector specialists have urged the government to amend its incentive schemes in general, specifically to reward innovation and environmentalism better. For example, subsidies could be based on energy consumption per 100 miles rather than maximum mileage ranges or vehicle lengths.

Policymakers do appear to be moving in that direction after the State Council unveiled five strategies to boost the electric vehicle market last month. One of five action points is to amend the subsidy programme and to stamp out fraud. Chief among the other four initiatives will be encouraging new breakthroughs in battery technology. Batteries account for up to 50% of NEV production costs. If companies can bring this down, electric cars should become a more cost-effective alternative to conventional cars.

There are also plans to boost battery density to 300Wh/kg by 2020. Higher density batteries improve vehicle range and speed: at the moment, China’s leading manufacturer BYD has achieved a 70Wh/kg to 100Wh/kg level for its new Tang sports utility vehicle, compared to Tesla’s 130Wh/kg to 180Wh/gk level for its bestselling Model S.

BYD has the lowest battery costs of any Chinese manufacturer. However, its challenge during 2015 was not being able to produce enough batteries to satisfy demand. It has been building a new plant in Shenzhen but this isn’t due to come on-stream until next year. In the meantime, it has had to slow sales of its existing plug-in Qin passenger car as it begins to ramp up sales of the Tang, its first electric SUV.

Retail figures show that sales of the Qin sedan peaked at 4,000 units a month in June, when the Tang was launched. They then halved in July as sales of the new model picked up. By December the Tang was selling 5,500 units a month, compared to just over 1,500 for the Qin.

Sales of the two models helped BYD jump from seventh place to number one spot in the rankings for the world’s largest electric car manufacturer, with an 11% market share. By the end of 2015, it had sold 61,700 electric vehicles, ahead of Japan’s Nissan on 51,600 and America’s Tesla on 48,200.

In an interview with CBN, BYD’s chairman Wang Chuanfu said NEV sales had amounted to Rmb22 billion ($3.38 billion), topping its conventional car sales for the first time and up from Rmb7.3 billion in 2014.

CBN also estimates that government subsidies netted the company about Rmb3.6 billion.

During 2016 BYD will introduce 10 new models, mostly named after Chinese dynasties. In the first quarter of 2016, the Tang will be followed by the Song (a compact SUV) and then later in the first half by the Yuan (a micro SUV).

Other launches include the Shang (a plug-in minivan) and the Ming (a seven-seat SUV).

According to a recent research report by Shenyin Wanguo Securities, the Tang is faster than BMW’s xDrive40e electric car, has a better range and retails at about a third of the price. But so far BYD hasn’t really been able to break out of its home market, where it has 75% market share. Aside from a handful of exports to minor markets like Costa Rica, vehicle sales are almost entirely in China.

In many respects BYD may not need to focus anywhere but China – the Chinese government wants to get five million electric vehicles on the road by 2020 (i.e. 4% of all cars). But first a proper charging network needs to be established, another of the State Council’s five strategies. Last October it said it wanted to have 4.8 million charging points in place by 2020 and analysts expect more provincial governments to announce their own plans after the National People’s Congress meeting concludes (see this issue’s Talking Point for more on this event).

Meanwhile, though prone to fraud, local governments remain keen on subsidies. In recent weeks Harbin and Jiangsu have both announced top-up sales subsidies, with Harbin preparing to support manufacturers and consumers by up to 60% of purchase prices.

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