You’ve probably heard of BYD.
A middling player in the auto industry just a few years ago, the Chinese electric vehicle manufacturer surpassed Tesla last year to become the world’s top-selling E.V. brand and is expected to pull even with the world’s biggest carmakers, Toyota and Volkswagen, by 2030.
Yet most Americans have never even seen a BYD, and probably won’t anytime soon.
BYD, which stands for “Build Your Dreams,” is essentially banned from American roads by tariffs imposed to protect U.S. automakers that double the price of imported Chinese plug-ins. Erecting tariff walls may buy the domestic auto industry some time, but it ultimately won’t insulate American manufacturers from BYD or the bigger threat that it represents.
The company embodies a Chinese industrial model that is leaving America in the dust. This model, which combines government financial support, methodical long-term planning and aggressive innovation, has already enabled China to achieve global dominance in a range of high-tech industries, from batteries to robotics to drones. Losing those markets to Chinese companies was bad enough. If the same happens in auto manufacturing, the impact would be far worse for America, due to the industry’s size and its economic, political and strategic importance.
The success of BYD and several other upstart Chinese car brands should be a warning for U.S. auto manufacturing and our industrial sector as a whole. We need the courage to recognize how badly we are falling behind, shake off complacency and adopt an urgent government-led effort — think of a “Manhattan Project,” but for cars — to restore U.S. competitiveness.
When I opened my automotive business in Beijing in 1992, cars produced by China’s then-fledgling auto industry were terrible. Shoddily designed and made from cheap materials, they were quick to break down, befitting the country’s reputation at the time as a factory for inferior knockoffs. BYD, a battery manufacturer that began making cars in 2003, was no exception. For years, its cars were notorious in China as clunkers.
Those days are long gone. I’ve driven nearly every BYD model and they are now as good as other top brands like Tesla in terms of design, features, advanced technologies and overall quality. The company’s Blade Battery is among the safest and most cost-efficient in the world, so good that Toyota and Tesla have used it in some of their cars. Most worrying for its competitors, BYDs are affordable: Its least expensive models sell in China for under $10,000, a third of the price of the most affordable electric vehicles available in the U.S. market.
How did BYD pull this off? “Government subsidies!” Western critics will cry, and that’s of course part of the story. Chinese automakers such as BYD are believed to have received billions of dollars worth of state support over the years. This is state capitalism at work. Americans can complain about it all they want, but China isn’t going to scrap this model just because we don’t like it.
It’s also not the only reason for BYD’s success. It can build cars so inexpensively thanks to what’s known as vertical integration. While most major carmakers source many important parts from outside suppliers, BYD makes almost all of its key components in-house, including batteries, semiconductors, motors and tablet screens, which saves costs and enhances quality control. It developed its cars’ operating software, has stakes in mines and mining companies that produce the minerals for its batteries and transports its vehicles around the world aboard its fleet of specially designed car-carrier ships.
BYD is also rapidly innovating. Earlier this year it unveiled an autonomous driving system that may be as good as Tesla’s, if not better, as well as technology that BYD says can charge cars in just five minutes — as quickly as filling a gas tank. Its top-end models include the YangWang U8, a luxury S.U.V. that can rotate 360 degrees in place and operate in water like a boat over short distances.
There’s an argument to be made that we should just let BYD into the U.S. market. It would give American consumers more bang for their buck and U.S. manufacturers a chance to learn from the company.
But BYD now has such overwhelming advantages in costs and battery technologies that it could end up destroying its U.S. competitors, endangering a critical American industry and hundreds of thousands of jobs. This is why Ford’s C.E.O., Jim Farley, last year called Chinese electric vehicles an existential threat and why Elon Musk said they will “demolish” the competition without trade barriers.
We can coddle American companies with tariffs, but it won’t change the fact that we are losing badly. China is far and away the world’s largest producer and exporter of all types of cars, including electrics. They may be shut out of the United States, but BYD and its Chinese peers are seizing control of the fast-growing global E.V. industry. Unable to compete abroad, U.S. automakers will have to retreat into the narrow space where they remain strong: the domestic U.S. market for gas-guzzling trucks and S.U.V.s.
America must take a page from China’s playbook. Ten years ago, Chinese leaders created a blueprint for domination of next-generation technologies, funneling huge sums of money into the project, knowing it would take years to pay off. BYD is just one of many examples of how this is now bearing fruit. Following China’s lead, with its heavy state involvement, would be a tough sell to many in Washington. But America has never confronted an industrial competitor like China.
And this isn’t only about electric vehicles. A strong auto sector has important implications for national defense. Technologies developed by the automotive industry such as batteries, sensors and motors are often later adapted for use in military equipment.
China’s control of supply chains for batteries and rare earth minerals used in electric vehicles is also a potential national security threat, one that we glimpsed recently when Beijing retaliated against U.S. trade tariffs by halting exports of rare earths and the magnets made from them.
Led by its national champion BYD, China has overtaken Detroit as the center of the global auto industry. America can embark on an all-out push to rebuild world-class manufacturing and supply chains, or our carmakers can hide behind tariffs, continue making gas-powered trucks and S.U.V.s and fade into irrelevance.
Michael Dunne (@dunne_insights) is the founder and CEO of Dunne Insights, an auto industry advisory firm. He is the author of “American Wheels, Chinese Roads: The Story of General Motors in China” and the forthcoming “Car Wars,” on the U.S.-China battle for dominance of the electric vehicle industry.
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