Warren Buffett-Backed Chinese Car Maker BYD Zooms Past Rivals

As China was dealing with Covid outbreaks, BYD became the second-best-selling brand in its home market—after

Volkswagen AG’s

joint venture with state-owned FAW Group Co.—for the first half of the year. That is a remarkable ascent given it didn’t rank among the top 15 a year earlier. Its car sales more than doubled in that period compared with a year ago, while the overall market dropped by 7.2%, data from the China Passenger Car Association showed. The value of its shares listed in Shenzhen has grown more than 30% in the past six months.

BYD, which stopped making traditional combustion-engine cars in March, is emerging as a formidable rival to

Tesla Inc.,

the world’s dominant electric-car maker. BYD sold around 324,000 electric vehicles globally between January and June, chasing Tesla’s sales of about 565,000 vehicles. During that period, BYD also sold about 315,000 plug-in hybrid cars.

Driving its rapid acceleration is its business model of producing its own electric-car batteries and some semiconductors, helping it secure two of the most crucial components when rivals are grappling with supply-chain disruptions and chip shortages. It also allows BYD to control costs.

BYD has “much more control over their own destiny” than other car makers because of that business model, said Tu Le, managing director for consulting firm Sino Auto Insights.

BYD was relatively unscathed by Covid-related city lockdowns that struck some rivals hard. Two of China’s biggest automotive hubs—Shanghai, in eastern China and Changchun in the north—went through rigid lockdowns in the spring, forcing auto makers including Tesla, Volkswagen and

Toyota Motor Corp.

to halt production at their plants in those cities. Other auto makers reliant on components produced in those areas also struggled as production and deliveries were disrupted.

BYD, whose car and component plants are mostly in the southern city of Shenzhen and central China, continued churning out cars. For one month, in April, as Shanghai was locked down, BYD emerged as China’s bestselling brand. In that month, Tesla, whose plant in Shanghai halted production in the middle of the lockdown, delivered 1,512 cars in total—a tiny fraction of the tens of thousands it usually sells each month.

A BYD spokeswoman said the company will continue to pursue having a strategic presence throughout the supply chain.

BYD is the latest example of Chinese auto makers growing as some foreign rivals stumble. On July 18,

Stellantis

NV said it was ending its Chinese joint venture following weakening sales in previous years and an inability to increase its shareholding. Chinese homegrown auto brands have consistently outperformed their rivals with foreign joint ventures. Homegrown brands saw sales rise 18% in the first half of this year compared with the same period in 2021. Joint-venture brands saw sales fall 6%, according to data from the China Passenger Car Association.

BYD’s automotive business is built on its experience as an electronics-components supplier. It began as a rechargeable-battery maker in 1995, developing into a major supplier of mobile-phone batteries over the next decade. It also made some chips used in mobile phones.

In 2003, it acquired a small state-owned auto maker, establishing itself as a privately run Chinese car maker in a market where foreign joint ventures and state-run players were dominant.

In 2008, Mr. Buffett’s

Berkshire Hathaway

invested $230 million for a 10% stake in BYD. The stake recently amounted to about 7.7% of the company, according to Berkshire Hathaway’s 2021 annual report. The company’s market capitalization had grown to $126 billion as of Saturday.

Being self-sufficient in critical components such as batteries, microcontrollers and power modules helps the company control production costs, industry executives and experts say. Buying externally means suppliers’ profit margins can increase BYD’s costs; making components in-house can save the company money.

The company has been seeking to expand in batteries as raw-materials costs soar. In May, Chinese state media The Paper reported that BYD was in talks to purchase six lithium mines in Africa. The company declined to comment on the deals.

Building its own batteries also helps BYD learn quickly from battery performance in its cars, helping it optimize its battery electric system, one industry executive said.

While BYD as a car maker competes with Tesla and other brands, it also serves as a supplier to some of them, creating a rival-partner dynamic at times. BYD is a supplier to Volkswagen, the German auto maker’s head of China business has said. Meanwhile, BYD said in June that it plans to supply batteries to Tesla.

“We are now good friends with

Elon Musk,

because we’re about to supply batteries to him,” Lian Yubo, BYD’s executive vice president told China’s state-owned television channel CGTN.

Tesla hasn’t confirmed the deal and didn’t respond to a request for comment.

BYD launched six new car models in the past six months in China, moving at an aggressive pace. Its bestselling models include the Song Plus plug-in hybrid compact SUV, the Qin Plus plug-in hybrid compact car and the Han EV midsize sedan, according to the China Passenger Car Association. While BYD’s passenger EV sales grew 246% in the first half of the year from a year ago, its plug-in hybrid sales increased almost sixfold, company data showed.

Write to Selina Cheng at [email protected]