New Energy Vehicles (NEVs) in China

tphuang said:

I don't think we are going to agree here


Let's say BYD doesn't get those plants. Now, the Germans/Americans are out of the China market. BYD loses 1 plant and maybe a few hundred stores in Europe. Let's say it sell those at 20% discount.
On the other side. Thousands of VW/BBA/Tesla stores in China are suddenly out of work, same with their sales staff. BYD will have its picking of store locations & sales staff that it can snap up really cheaply. Since those foreign JV partners are suddenly left with factories and no work, now there is a healthy selection of available workers with industry experience you can snap up. The land/facility of those old factories are available for really cheap. BYD can quickly snap them up and put the latest tools in them and voila.
If you have seen how quickly BYD has been able to build new factories and tool them, you would think this is not a problem at all.

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There is a lot of excess EV and car production capacity in China. So there are already many car factories and dealer locations for sale.

So it would make sense for Chinese companies (BYD, Geely, SAIC, etc) to ramp up their existing factories to full capacity first.

Plus in terms of BYD's European strategy, they're working with existing dealers rather than building out their own network. So I expect the dealers are funding much of this. It makes sense from a risk perspective because the dealers take on much of the cost.

Blitzo said:

Sure, you're probably right.
But it is also undeniable that BYD's current US efforts have received next to no political or media scrutiny.

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BYD buses have already been cut out of US federal government funding, despite BYD having the bus factory in California.

So you can imagine how a BYD car factory would be treated in the US

tphuang said:

I would actually entirely welcome that development. A situation where Chinese automakers get banned in Europe and vice versa would be major cause of celebration. overnight, Western automakers are admitting they cannot win, which would boost the Chinese automotive brands. More importantly, Chinese automakers get the whole domestic market with no foreign competition.
If the result of BYD building a factory in Europe is having to sell that factory at below market rate, but then able to take over VW plants in China, that would be a major win.

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The Chinese auto market is going to become Chinese anyway.

In order to compete, the foreign automakers will have to use China-based design teams, component suppliers, factories ete, even more so than today.

Remember that domestically, Chinese auto companies are already regarded as technology leaders and better when compared to foreign brands.

So I think China and Europe banning each others cars would be a net negative for China.

At this juncture, maybe we should revisit the case of Alstom, which is well known in China. It shows you how the US treats one of its supposed allies, France.

Exclusive: Act with strength or US won't back off: Ex-Alstom executive on China's victory in Meng Wanzhou's case

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An unlikely winner in the China-U.S. trade war? A French businessman’s book about his battle with the DOJ.​

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The US' and GE's war on Alstom​

Let’s cut to the chase. Alstom was being pursued not merely because it is competitive with US giants like General Electric, but also because GE wants its assets and attendant skills and order book. The pursuit of Alstom was a joint Justice Department / GE endeavor.

Alstom would become the fifth company that GE bought with Justice Department leverage. GE was chock full of ex-Justice Department staff which facilitated the joint venture operation. Justice and GE would mutually determine the timing of the takeover of Alstom Energy (the bulk of the Alstom group) and of the attribution of the fine.

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AndrewS said:

The Chinese auto market is going to become Chinese anyway.

In order to compete, the foreign automakers will have to use China-based design teams, component suppliers, factories ete, even more so than today.

Remember that domestically, Chinese auto companies are already regarded as technology leaders and better when compared to foreign brands.

So I think China and Europe banning each others cars would be a net negative for China.

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VW & BBA are not going to leave China. If they leave China, it would be the end of those companies. If BYD can even get 5% of European market, that would be a big deal. I don't think Germans will fall below 10% in China. Even 10% in China in the future would be 3million sales a year. If Chinese automakers reach 10% in Europe, that would still only be 1.5million per year.

As for supply chain, Europeans have already locked into Chinese supply chain.

keep this in mind.

Let's say BYD can reach > 20k/month with local Europe production and no tariffs. It sells cars at average of $35K per unit. We know that profits are 2x in export markets. So let's say the margins for these sales are 35%.

20k x 35000 x 0.35 x 12 = $2.94B which can go toward paying all the advertising, dealer network, factory depreciation and such.

My point is that margins are so high in export market that even if you sell 20k more per month vs if you didn't build local factory, you can make close to $3B in additional profit. None of the plant BYD has announced so far cost even $1B to build.

So the question is how much additional revenue you can earn from lowering prices and selling more EVs due to no tariffs vs having a plant that could be forced to stop action in a couple of years and the cost from that.

tphuang said:

VW & BBA are not going to leave China. If they leave China, it would be the end of those companies.

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tphuang said:

If BYD can even get 5% of European market, that would be a big deal. I don't think Germans will fall below 10% in China. Even 10% in China in the future would be 3million sales a year. If Chinese automakers reach 10% in Europe, that would still only be 1.5million per year.

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I agree that VW & BBA will want to stay in China.

But I don't see VW models competing successfully against Chinese brands in the low to mid market.

So in terms of BBA sales in China, it's currently about 2 million in total.
But I see this as the high point, because even the BBA car platforms are behind and they already have to compete against Denza, Li Auto, NIO etc in this price category.

So they would end up with <7% of the Chinese market in terms of brands.

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Even if the German automakers had to leave China, it's probably one-third to one-half of their profits. So it wouldn't be the end as they could still rely on a protected home market and also the US.

But I don't think they will leave, but instead, decide to really localise their Chinese operations to compete in terms of tech and cost. So R&D and production all occur in China. At that point, their China operations have effectively become all Chinese, and China also is their global export hub. It's similar to the Tesla model, except the German automakers don't have software expertise readily available, so they will use Chinese companies for the software, like VW is doing now.

In comparison, Chinese automakers setting up foreign factories will want to maximise the amount of Chinese content. Again, this is due to better tech and lower costs.

my thoughts on the BYD price cuts. A lot at play here. Competition with Geely is one thing that people have missed

One way to mitigate the risk of asset seizures is to set up a subsidiary in the host country, then take out as big a loan as you can from the local banks to build the factory. If the host country decides to seize your factory, the loss will only be a small fraction of the cost. The one holding the bag will be the local banks.

AndrewS said:

The Chinese auto market is going to become Chinese anyway.

In order to compete, the foreign automakers will have to use China-based design teams, component suppliers, factories ete, even more so than today.

Remember that domestically, Chinese auto companies are already regarded as technology leaders and better when compared to foreign brands.

So I think China and Europe banning each others cars would be a net negative for China.

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I dear say "Sandy Munro "would beg to differ with you when he suggests that TESLA is 5 to 10yrs ahead of its competitors in the electronics, manufacturing, and most aspects of overall performance.

Tesla is ahead of the traditional car companies in the West. But not the EV leaders in China.